Correlation Between Caterpillar and Airports
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Airports 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 Airports into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Airports of Thailand, you can compare the effects of market volatilities on Caterpillar and Airports 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 Airports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Airports.
Diversification Opportunities for Caterpillar and Airports
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Airports is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Airports of Thailand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airports of Thailand 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 Airports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airports of Thailand has no effect on the direction of Caterpillar i.e., Caterpillar and Airports go up and down completely randomly.
Pair Corralation between Caterpillar and Airports
Considering the 90-day investment horizon Caterpillar is expected to generate 1.2 times less return on investment than Airports. In addition to that, Caterpillar is 2.14 times more volatile than Airports of Thailand. It trades about 0.08 of its total potential returns per unit of risk. Airports of Thailand is currently generating about 0.21 per unit of volatility. If you would invest 190.00 in Airports of Thailand on August 28, 2024 and sell it today you would earn a total of 10.00 from holding Airports of Thailand or generate 5.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Airports of Thailand
Performance |
| Timeline |
| Caterpillar |
| Airports of Thailand |
Caterpillar and Airports Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Airports
The main advantage of trading using opposite Caterpillar and Airports positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Airports 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 Airports will offset losses from the drop in Airports' long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| Airports vs. Aerofoam Metals | Airports vs. Porvair plc | Airports vs. Tyson Foods | Airports vs. Lion One Metals |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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