Correlation Between Centene Corp and Caterpillar

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

Diversification Opportunities for Centene Corp and Caterpillar

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Centene and Caterpillar is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Centene Corp and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Centene Corp 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 Centene Corp 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 Centene Corp i.e., Centene Corp and Caterpillar go up and down completely randomly.

Pair Corralation between Centene Corp and Caterpillar

Considering the 90-day investment horizon Centene Corp is expected to generate 1.08 times more return on investment than Caterpillar. However, Centene Corp is 1.08 times more volatile than Caterpillar. It trades about 0.05 of its potential returns per unit of risk. Caterpillar is currently generating about 0.05 per unit of risk. If you would invest  6,412  in Centene Corp on May 9, 2022 and sell it today you would earn a total of  2,893  from holding Centene Corp or generate 45.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Centene Corp  vs.  Caterpillar

 Performance (%) 
       Timeline  
Centene Corp 
Centene Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Centene Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Centene Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Centene Price Channel

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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Caterpillar Price Channel

Centene Corp and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Centene Corp and Caterpillar

The main advantage of trading using opposite Centene Corp and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centene Corp 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.
The idea behind Centene Corp 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.
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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