Correlation Between Gencor Industries and Caterpillar

Can any of the company-specific risk be diversified away by investing in both Gencor Industries and Caterpillar 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 Gencor Industries and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gencor Industries and Caterpillar, you can compare the effects of market volatilities on Gencor Industries and Caterpillar 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 Gencor Industries with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gencor Industries and Caterpillar.

Diversification Opportunities for Gencor Industries and Caterpillar

0.71

Correlation Coefficient

Gencor Industries  Caterpillar

Poor diversification

The 3 months correlation between Gencor and Caterpillar is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Gencor Industries and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Gencor Industries 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 Gencor Industries are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Gencor Industries i.e., Gencor Industries and Caterpillar go up and down completely randomly.

Pair Corralation between Gencor Industries and Caterpillar

Given the investment horizon of 90 days Gencor Industries is expected to generate 1.18 times more return on investment than Caterpillar. However, Gencor Industries is 1.18 times more volatile than Caterpillar. It trades about 0.11 of its potential returns per unit of risk. Caterpillar is currently generating about 0.1 per unit of risk. If you would invest  1,616  in Gencor Industries on January 25, 2024 and sell it today you would earn a total of  59.00  from holding Gencor Industries or generate 3.65% return on investment over 90 days.

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

Gencor Industries  vs.  Caterpillar

Gencor Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gencor Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Gencor Industries is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Gencor Industries and Caterpillar

The main advantage of trading using opposite Gencor Industries and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gencor Industries position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.

The idea behind Gencor Industries and Caterpillar 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..