Correlation Between Caterpillar and Burford Capital

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

Diversification Opportunities for Caterpillar and Burford Capital

0.39
  Correlation Coefficient

Weak diversification

The 1 month correlation between Caterpillar and Burford is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Burford Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burford Capital 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 Burford Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burford Capital has no effect on the direction of Caterpillar i.e., Caterpillar and Burford Capital go up and down completely randomly.

Pair Corralation between Caterpillar and Burford Capital

Considering the 90-day investment horizon Caterpillar is expected to generate 1.12 times less return on investment than Burford Capital. But when comparing it to its historical volatility, Caterpillar is 1.41 times less risky than Burford Capital. It trades about 0.05 of its potential returns per unit of risk. Burford Capital is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  727.00  in Burford Capital on May 17, 2022 and sell it today you would earn a total of  288.00  from holding Burford Capital or generate 39.61% return on investment over 90 days.
Time Period1 Month [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.8%
ValuesDaily Returns

Caterpillar  vs.  Burford Capital

 Performance (%) 
       Timeline  
Caterpillar 
Caterpillar Performance
19 of 100
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 unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar Price Channel

Burford Capital 
Burford Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Burford Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Burford Capital may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Burford Price Channel

Caterpillar and Burford Capital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Burford Capital

The main advantage of trading using opposite Caterpillar and Burford Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Burford Capital 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 Burford Capital will offset losses from the drop in Burford Capital's long position.
The idea behind Caterpillar and Burford Capital 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.
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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