Correlation Between Holbrook Income and Caterpillar

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

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

Diversification Opportunities for Holbrook Income and Caterpillar

0.77

Correlation Coefficient

Holbrook Income  Caterpillar

Poor diversification

The 3 months correlation between Holbrook and Caterpillar is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Holbrook Income and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Holbrook Income 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 Holbrook Income 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 Holbrook Income i.e., Holbrook Income and Caterpillar go up and down completely randomly.

Pair Corralation between Holbrook Income and Caterpillar

Assuming the 90 days horizon Holbrook Income is expected to generate 12.74 times less return on investment than Caterpillar. But when comparing it to its historical volatility, Holbrook Income is 5.55 times less risky than Caterpillar. It trades about 0.12 of its potential returns per unit of risk. Caterpillar is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  31,374  in Caterpillar on January 20, 2024 and sell it today you would earn a total of  4,419  from holding Caterpillar or generate 14.08% return on investment over 90 days.

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

Holbrook Income  vs.  Caterpillar

Holbrook Income

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Holbrook Income are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Holbrook Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Caterpillar

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Holbrook Income and Caterpillar

The main advantage of trading using opposite Holbrook Income and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Holbrook Income 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 Holbrook Income 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.