Correlation Between Caterpillar and Valneva SE

Can any of the company-specific risk be diversified away by investing in both Caterpillar and Valneva SE at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Caterpillar and Valneva SE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and Valneva SE ADR, you can compare the effects of market volatilities on Caterpillar and Valneva SE and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Caterpillar with a short position of Valneva SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Valneva SE.

Diversification Opportunities for Caterpillar and Valneva SE

-0.11

Correlation Coefficient

Caterpillar  Valneva SE

Good diversification

The 3 months correlation between Caterpillar and Valneva is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Valneva SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valneva SE ADR and Caterpillar is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Caterpillar are associated (or correlated) with Valneva SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valneva SE ADR has no effect on the direction of Caterpillar i.e., Caterpillar and Valneva SE go up and down completely randomly.

Pair Corralation between Caterpillar and Valneva SE

Considering the 90-day investment horizon Caterpillar is expected to generate 0.4 times more return on investment than Valneva SE. However, Caterpillar is 2.51 times less risky than Valneva SE. It trades about 0.28 of its potential returns per unit of risk. Valneva SE ADR is currently generating about -0.09 per unit of risk. If you would invest  24,535  in Caterpillar on January 25, 2024 and sell it today you would earn a total of  11,817  from holding Caterpillar or generate 48.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  Valneva SE ADR

Caterpillar

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Valneva SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valneva SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Valneva SE is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and Valneva SE

The main advantage of trading using opposite Caterpillar and Valneva SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Valneva SE can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Valneva SE will offset losses from the drop in Valneva SE's long position.

The idea behind Caterpillar and Valneva SE ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.