Correlation Between Caterpillar and MASSMUTUAL SELECT

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Can any of the company-specific risk be diversified away by investing in both Caterpillar and MASSMUTUAL SELECT 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 MASSMUTUAL SELECT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and MASSMUTUAL SELECT SMALL, you can compare the effects of market volatilities on Caterpillar and MASSMUTUAL SELECT 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 MASSMUTUAL SELECT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and MASSMUTUAL SELECT.

Diversification Opportunities for Caterpillar and MASSMUTUAL SELECT

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Caterpillar and MASSMUTUAL is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and MASSMUTUAL SELECT SMALL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MASSMUTUAL SELECT SMALL 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 MASSMUTUAL SELECT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MASSMUTUAL SELECT SMALL has no effect on the direction of Caterpillar i.e., Caterpillar and MASSMUTUAL SELECT go up and down completely randomly.

Pair Corralation between Caterpillar and MASSMUTUAL SELECT

Considering the 90-day investment horizon Caterpillar is expected to generate 1.03 times more return on investment than MASSMUTUAL SELECT. However, Caterpillar is 1.03 times more volatile than MASSMUTUAL SELECT SMALL. It trades about 0.04 of its potential returns per unit of risk. MASSMUTUAL SELECT SMALL is currently generating about 0.03 per unit of risk. If you would invest  17,242  in Caterpillar on September 10, 2022 and sell it today you would earn a total of  5,487  from holding Caterpillar or generate 31.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  MASSMUTUAL SELECT SMALL

 Performance (%) 
       Timeline  
Caterpillar 
Caterpillar Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 11 (%) 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.

Caterpillar Price Channel

MASSMUTUAL SELECT SMALL 
MASSMUTUAL Performance
0 of 100
Over the last 90 days MASSMUTUAL SELECT SMALL has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, MASSMUTUAL SELECT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MASSMUTUAL Price Channel

Caterpillar and MASSMUTUAL SELECT Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and MASSMUTUAL SELECT

The main advantage of trading using opposite Caterpillar and MASSMUTUAL SELECT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, MASSMUTUAL SELECT 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 MASSMUTUAL SELECT will offset losses from the drop in MASSMUTUAL SELECT's long position.
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The idea behind Caterpillar and MASSMUTUAL SELECT SMALL 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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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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