Correlation Between Caterpillar and Simplify Exchange

Can any of the company-specific risk be diversified away by investing in both Caterpillar and Simplify Exchange 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 Simplify Exchange into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and Simplify Exchange Traded, you can compare the effects of market volatilities on Caterpillar and Simplify Exchange 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 Simplify Exchange. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Simplify Exchange.

Diversification Opportunities for Caterpillar and Simplify Exchange

0.95

Correlation Coefficient

Caterpillar  Simplify Exchange

Almost no diversification

The 3 months correlation between Caterpillar and Simplify is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Simplify Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Exchange Traded 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 Simplify Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Exchange Traded has no effect on the direction of Caterpillar i.e., Caterpillar and Simplify Exchange go up and down completely randomly.

Pair Corralation between Caterpillar and Simplify Exchange

Considering the 90-day investment horizon Caterpillar is expected to generate 0.88 times more return on investment than Simplify Exchange. However, Caterpillar is 1.14 times less risky than Simplify Exchange. It trades about 0.42 of its potential returns per unit of risk. Simplify Exchange Traded is currently generating about 0.18 per unit of risk. If you would invest  30,814  in Caterpillar on April 30, 2025 and sell it today you would earn a total of  12,480  from holding Caterpillar or generate 40.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  Simplify Exchange Traded

Caterpillar

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Simplify Exchange Traded

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Exchange Traded are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Simplify Exchange unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Simplify Exchange

The main advantage of trading using opposite Caterpillar and Simplify Exchange positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Simplify Exchange 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 Simplify Exchange will offset losses from the drop in Simplify Exchange's long position.

The idea behind Caterpillar and Simplify Exchange Traded 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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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 the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.