Correlation Between Caterpillar and JP Morgan

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

Diversification Opportunities for Caterpillar and JP Morgan

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Caterpillar and JP Morgan is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and JP Morgan Chase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JP Morgan Chase 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 JP Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JP Morgan Chase has no effect on the direction of Caterpillar i.e., Caterpillar and JP Morgan go up and down completely randomly.

Pair Corralation between Caterpillar and JP Morgan

Considering the 90-day investment horizon Caterpillar is expected to generate 1.14 times more return on investment than JP Morgan. However, Caterpillar is 1.14 times more volatile than JP Morgan Chase. It trades about 0.0 of its potential returns per unit of risk. JP Morgan Chase is currently generating about -0.04 per unit of risk. If you would invest  20,457  in Caterpillar on May 19, 2022 and sell it today you would lose (705.00)  from holding Caterpillar or give up 3.45% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  JP Morgan Chase

 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Caterpillar Price Channel

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

JP Morgan Price Channel

Caterpillar and JP Morgan Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and JP Morgan

The main advantage of trading using opposite Caterpillar and JP Morgan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, JP Morgan 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 JP Morgan will offset losses from the drop in JP Morgan's long position.
The idea behind Caterpillar and JP Morgan Chase 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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