Correlation Between Caterpillar and ProShares UltraShort

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

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

Diversification Opportunities for Caterpillar and ProShares UltraShort

-0.67

Correlation Coefficient

Caterpillar  ProShares UltraShort

Excellent diversification

The 3 months correlation between Caterpillar and ProShares is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ProShares UltraShort Euro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraShort Euro 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 ProShares UltraShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraShort Euro has no effect on the direction of Caterpillar i.e., Caterpillar and ProShares UltraShort go up and down completely randomly.

Pair Corralation between Caterpillar and ProShares UltraShort

Considering the 90-day investment horizon Caterpillar is expected to generate 1.16 times more return on investment than ProShares UltraShort. However, Caterpillar is 1.16 times more volatile than ProShares UltraShort Euro. It trades about 0.35 of its potential returns per unit of risk. ProShares UltraShort Euro is currently generating about -0.04 per unit of risk. If you would invest  32,193  in Caterpillar on May 5, 2025 and sell it today you would earn a total of  10,676  from holding Caterpillar or generate 33.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  ProShares UltraShort Euro

Caterpillar

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 27 (%) 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.

ProShares UltraShort Euro

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares UltraShort Euro has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ProShares UltraShort is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and ProShares UltraShort

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

The idea behind Caterpillar and ProShares UltraShort Euro 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 the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.