Correlation Between Clearwater Paper and Caterpillar

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

Diversification Opportunities for Clearwater Paper and Caterpillar

-0.18
  Correlation Coefficient

Good diversification

The 3 months correlation between Clearwater and Caterpillar is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Clearwater Paper and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Clearwater Paper 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 Clearwater Paper 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 Clearwater Paper i.e., Clearwater Paper and Caterpillar go up and down completely randomly.

Pair Corralation between Clearwater Paper and Caterpillar

Considering the 90-day investment horizon Clearwater Paper is expected to generate 1.45 times less return on investment than Caterpillar. In addition to that, Clearwater Paper is 1.56 times more volatile than Caterpillar. It trades about 0.02 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.04 per unit of volatility. If you would invest  17,147  in Caterpillar on September 8, 2022 and sell it today you would earn a total of  5,751  from holding Caterpillar or generate 33.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Clearwater Paper  vs.  Caterpillar

 Performance (%) 
       Timeline  
Clearwater Paper 
Clearwater Performance
0 of 100
Over the last 90 days Clearwater Paper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Clearwater Paper is not utilizing all of its potentials. The new stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Clearwater Price Channel

Caterpillar 
Caterpillar Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 13 (%) 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

Clearwater Paper and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Clearwater Paper and Caterpillar

The main advantage of trading using opposite Clearwater Paper and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clearwater Paper 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 Clearwater Paper 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 Fund Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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