Correlation Between Caterpillar and Atacama Resources
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Atacama Resources 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 Atacama Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Atacama Resources International, you can compare the effects of market volatilities on Caterpillar and Atacama Resources 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 Atacama Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Atacama Resources.
Diversification Opportunities for Caterpillar and Atacama Resources
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and Atacama is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Atacama Resources Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atacama Resources 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 Atacama Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atacama Resources has no effect on the direction of Caterpillar i.e., Caterpillar and Atacama Resources go up and down completely randomly.
Pair Corralation between Caterpillar and Atacama Resources
Considering the 90-day investment horizon Caterpillar is expected to generate 2.82 times less return on investment than Atacama Resources. But when comparing it to its historical volatility, Caterpillar is 6.38 times less risky than Atacama Resources. It trades about 0.08 of its potential returns per unit of risk. Atacama Resources International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 0.47 in Atacama Resources International on September 3, 2024 and sell it today you would lose (0.30) from holding Atacama Resources International or give up 63.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Atacama Resources Internationa
Performance |
| Timeline |
| Caterpillar |
| Atacama Resources |
Caterpillar and Atacama Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Atacama Resources
The main advantage of trading using opposite Caterpillar and Atacama Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Atacama Resources 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 Atacama Resources will offset losses from the drop in Atacama Resources' long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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