Correlation Between Caterpillar and MFS Active

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

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

Diversification Opportunities for Caterpillar and MFS Active

0.84

Correlation Coefficient

Caterpillar  MFS Active

Very poor diversification

The 3 months correlation between Caterpillar and MFS is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and MFS Active Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS Active Core 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 MFS Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS Active Core has no effect on the direction of Caterpillar i.e., Caterpillar and MFS Active go up and down completely randomly.

Pair Corralation between Caterpillar and MFS Active

Considering the 90-day investment horizon Caterpillar is expected to generate 4.66 times more return on investment than MFS Active. However, Caterpillar is 4.66 times more volatile than MFS Active Core. It trades about 0.37 of its potential returns per unit of risk. MFS Active Core is currently generating about 0.17 per unit of risk. If you would invest  32,307  in Caterpillar on May 8, 2025 and sell it today you would earn a total of  11,116  from holding Caterpillar or generate 34.41% return on investment over 90 days.

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

Caterpillar  vs.  MFS Active Core

Caterpillar

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 29 (%) 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.

MFS Active Core

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MFS Active Core are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, MFS Active is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and MFS Active

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

The idea behind Caterpillar and MFS Active Core 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.