Correlation Between Caterpillar and Citigroup
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Citigroup 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 Citigroup into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Citigroup, you can compare the effects of market volatilities on Caterpillar and Citigroup 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 Citigroup. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Citigroup.
Diversification Opportunities for Caterpillar and Citigroup
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Caterpillar and Citigroup is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Caterpillar i.e., Caterpillar and Citigroup go up and down completely randomly.
Pair Corralation between Caterpillar and Citigroup
Assuming the 90 days trading horizon Caterpillar is expected to under-perform the Citigroup. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.01 times less risky than Citigroup. The stock trades about -0.14 of its potential returns per unit of risk. The Citigroup is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 143,482 in Citigroup on November 26, 2024 and sell it today you would earn a total of 20,518 from holding Citigroup or generate 14.3% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Caterpillar vs. Citigroup
Performance |
Timeline |
Caterpillar |
Citigroup |
Caterpillar and Citigroup Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caterpillar and Citigroup
The main advantage of trading using opposite Caterpillar and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Citigroup 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 Citigroup will offset losses from the drop in Citigroup's long position.Caterpillar vs. Air Transport Services | ||
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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