Correlation Between Verizon Communications and Caterpillar

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

Diversification Opportunities for Verizon Communications and Caterpillar

-0.24
  Correlation Coefficient

Very good diversification

The 3 months correlation between Verizon and Caterpillar is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Verizon Communications 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 Verizon Communications 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 Verizon Communications i.e., Verizon Communications and Caterpillar go up and down completely randomly.

Pair Corralation between Verizon Communications and Caterpillar

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the Caterpillar. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.71 times less risky than Caterpillar. The stock trades about -0.06 of its potential returns per unit of risk. The Caterpillar is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  14,698  in Caterpillar on June 27, 2022 and sell it today you would earn a total of  1,726  from holding Caterpillar or generate 11.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Verizon Communications  vs.  Caterpillar

 Performance (%) 
       Timeline  
Verizon Communications 
Verizon Performance
0 of 100
Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in October 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Verizon 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 unsteady 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

Verizon Communications and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Verizon Communications and Caterpillar

The main advantage of trading using opposite Verizon Communications and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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.
Verizon Communications vs. BUSHVELD MINERALS LTD
The idea behind Verizon Communications 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. BUSHVELD MINERALS LTD
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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