Correlation Between Victory Integrity and Caterpillar

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

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

Diversification Opportunities for Victory Integrity and Caterpillar

0.45

Correlation Coefficient

Victory Integrity  Caterpillar

Very weak diversification

The 3 months correlation between Victory and Caterpillar is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Victory Integrity Discovery and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Victory Integrity 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 Victory Integrity Discovery 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 Victory Integrity i.e., Victory Integrity and Caterpillar go up and down completely randomly.

Pair Corralation between Victory Integrity and Caterpillar

Assuming the 90 days horizon Victory Integrity is expected to generate 7.22 times less return on investment than Caterpillar. But when comparing it to its historical volatility, Victory Integrity Discovery is 1.32 times less risky than Caterpillar. It trades about 0.01 of its potential returns per unit of risk. Caterpillar is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  21,340  in Caterpillar on January 24, 2024 and sell it today you would earn a total of  14,421  from holding Caterpillar or generate 67.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Victory Integrity Discovery  vs.  Caterpillar

Victory Integrity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Victory Integrity Discovery has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Victory Integrity 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 Victory Integrity and Caterpillar

The main advantage of trading using opposite Victory Integrity and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Victory Integrity 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 Victory Integrity Discovery 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.