Correlation Between Caterpillar and AIB Group
Can any of the company-specific risk be diversified away by investing in both Caterpillar and AIB Group 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 AIB Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and AIB Group plc, you can compare the effects of market volatilities on Caterpillar and AIB Group 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 AIB Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and AIB Group.
Diversification Opportunities for Caterpillar and AIB Group
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and AIB is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AIB Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIB Group plc 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 AIB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIB Group plc has no effect on the direction of Caterpillar i.e., Caterpillar and AIB Group go up and down completely randomly.
Pair Corralation between Caterpillar and AIB Group
Considering the 90-day investment horizon Caterpillar is expected to generate 1.0 times more return on investment than AIB Group. However, Caterpillar is 1.0 times less risky than AIB Group. It trades about 0.17 of its potential returns per unit of risk. AIB Group plc is currently generating about 0.01 per unit of risk. If you would invest 37,652 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 2,959 from holding Caterpillar or generate 7.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. AIB Group plc
Performance |
| Timeline |
| Caterpillar |
| AIB Group plc |
Caterpillar and AIB Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and AIB Group
The main advantage of trading using opposite Caterpillar and AIB Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, AIB Group 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 AIB Group will offset losses from the drop in AIB Group's 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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