Correlation Between JPMorgan Chase and Caterpillar

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

Diversification Opportunities for JPMorgan Chase and Caterpillar

0.96
  Correlation Coefficient

Almost no diversification

The 3 months correlation between JPMorgan and Caterpillar is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding JPMorgan Chase Co and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and JPMorgan Chase 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 JPMorgan Chase Co 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 JPMorgan Chase i.e., JPMorgan Chase and Caterpillar go up and down completely randomly.

Pair Corralation between JPMorgan Chase and Caterpillar

Considering the 90-day investment horizon JPMorgan Chase is expected to generate 1.65 times less return on investment than Caterpillar. But when comparing it to its historical volatility, JPMorgan Chase Co is 1.14 times less risky than Caterpillar. It trades about 0.03 of its potential returns per unit of risk. Caterpillar is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17,319  in Caterpillar on September 9, 2022 and sell it today you would earn a total of  5,579  from holding Caterpillar or generate 32.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

JPMorgan Chase Co  vs.  Caterpillar

 Performance (%) 
       Timeline  
JPMorgan Chase 
JPMorgan Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Chase Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, JPMorgan Chase may actually be approaching a critical reversion point that can send shares even higher in January 2023.

JPMorgan Price Channel

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 conflicting basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar Price Channel

JPMorgan Chase and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with JPMorgan Chase and Caterpillar

The main advantage of trading using opposite JPMorgan Chase and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JPMorgan Chase 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.
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The idea behind JPMorgan Chase Co 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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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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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