Correlation Between Jacobs Engineering and Caterpillar

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

Diversification Opportunities for Jacobs Engineering and Caterpillar

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Jacobs and Caterpillar is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Jacobs Engineering Group and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Jacobs Engineering 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 Jacobs Engineering Group 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 Jacobs Engineering i.e., Jacobs Engineering and Caterpillar go up and down completely randomly.

Pair Corralation between Jacobs Engineering and Caterpillar

Taking into account the 90-day investment horizon Jacobs Engineering Group is expected to generate 0.98 times more return on investment than Caterpillar. However, Jacobs Engineering Group is 1.02 times less risky than Caterpillar. It trades about -0.4 of its potential returns per unit of risk. Caterpillar is currently generating about -0.4 per unit of risk. If you would invest  12,827  in Jacobs Engineering Group on June 30, 2022 and sell it today you would lose (1,898)  from holding Jacobs Engineering Group or give up 14.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Jacobs Engineering Group  vs.  Caterpillar

 Performance (%) 
       Timeline  
Jacobs Engineering 
Jacobs Performance
0 of 100
Over the last 90 days Jacobs Engineering Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking indicators remain fairly strong which may send shares a bit higher in October 2022. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Jacobs 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 abnormal 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

Jacobs Engineering and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Jacobs Engineering and Caterpillar

The main advantage of trading using opposite Jacobs Engineering and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jacobs Engineering 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.
Jacobs Engineering vs. Sunrun Inc
The idea behind Jacobs Engineering Group 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.
Caterpillar vs. Clearwater Paper Corp
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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