Correlation Between Caterpillar and Diamond Hill

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

Diversification Opportunities for Caterpillar and Diamond Hill

0.02
  Correlation Coefficient

Significant diversification

The 3 months correlation between Caterpillar and Diamond is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Diamond Hill Inv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Inv 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 Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Inv has no effect on the direction of Caterpillar i.e., Caterpillar and Diamond Hill go up and down completely randomly.

Pair Corralation between Caterpillar and Diamond Hill

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Diamond Hill. In addition to that, Caterpillar is 1.29 times more volatile than Diamond Hill Inv. It trades about -0.02 of its total potential returns per unit of risk. Diamond Hill Inv is currently generating about 0.06 per unit of volatility. If you would invest  17,570  in Diamond Hill Inv on May 16, 2022 and sell it today you would earn a total of  742.00  from holding Diamond Hill Inv or generate 4.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Diamond Hill Inv

 Performance (%) 
       Timeline  
Caterpillar 
Caterpillar Performance
0 of 100
Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Caterpillar Price Channel

Diamond Hill Inv 
Diamond Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Inv are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent forward indicators, Diamond Hill may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Diamond Price Channel

Caterpillar and Diamond Hill Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Diamond Hill

The main advantage of trading using opposite Caterpillar and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Diamond Hill 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 Diamond Hill will offset losses from the drop in Diamond Hill's long position.
The idea behind Caterpillar and Diamond Hill Inv 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.

Diamond Hill Inv

Pair trading matchups for Diamond Hill

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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