Correlation Between Caterpillar and Auburn Bancorp
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Auburn Bancorp 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 Auburn Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Auburn Bancorp, you can compare the effects of market volatilities on Caterpillar and Auburn Bancorp 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 Auburn Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Auburn Bancorp.
Diversification Opportunities for Caterpillar and Auburn Bancorp
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and Auburn is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Auburn Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auburn Bancorp 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 Auburn Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auburn Bancorp has no effect on the direction of Caterpillar i.e., Caterpillar and Auburn Bancorp go up and down completely randomly.
Pair Corralation between Caterpillar and Auburn Bancorp
Considering the 90-day investment horizon Caterpillar is expected to generate 1.0 times more return on investment than Auburn Bancorp. However, Caterpillar is 1.0 times more volatile than Auburn Bancorp. It trades about 0.06 of its potential returns per unit of risk. Auburn Bancorp is currently generating about -0.03 per unit of risk. If you would invest 21,117 in Caterpillar on December 5, 2024 and sell it today you would earn a total of 11,558 from holding Caterpillar or generate 54.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Auburn Bancorp
Performance |
| Timeline |
| Caterpillar |
| Auburn Bancorp |
Caterpillar and Auburn Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Auburn Bancorp
The main advantage of trading using opposite Caterpillar and Auburn Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Auburn Bancorp 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 Auburn Bancorp will offset losses from the drop in Auburn Bancorp's long position.| Caterpillar vs. AGCO Corporation | ||
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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