diversifiable risk of combining Caterpillar and Vertex Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Vertex Pharmaceuticals, you can compare the effects of market volatilities on Caterpillar and Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Vertex Pharmaceuticals.
Diversification Opportunities for Caterpillar and Vertex Pharmaceuticals
Pair Corralation between Caterpillar and Vertex Pharmaceuticals
Considering the 90-day investment horizon Caterpillar is expected to generate 1.09 times more return on investment than Vertex Pharmaceuticals. However, Caterpillar is 1.09 times more volatile than Vertex Pharmaceuticals. It trades about 0.28 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about -0.14 per unit of risk. If you would invest 28,883 in Caterpillar on November 24, 2023 and sell it today you would earn a total of 2,831 from holding Caterpillar or generate 9.8% return on investment over 90 days.
Caterpillar vs. Vertex Pharmaceuticals
Caterpillar and Vertex Pharmaceuticals Volatility Contrast
Pair Trading with Caterpillar and Vertex PharmaceuticalsThe main advantage of trading using opposite Caterpillar and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals will offset losses from the drop in Vertex Pharmaceuticals' long position. The idea behind Caterpillar and Vertex Pharmaceuticals 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.
Check out your portfolio center.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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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