Correlation Between Caterpillar and AMA Group
Can any of the company-specific risk be diversified away by investing in both Caterpillar and AMA 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 AMA Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and AMA Group Limited, you can compare the effects of market volatilities on Caterpillar and AMA 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 AMA Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and AMA Group.
Diversification Opportunities for Caterpillar and AMA Group
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and AMA is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AMA Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMA Group Limited 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 AMA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMA Group Limited has no effect on the direction of Caterpillar i.e., Caterpillar and AMA Group go up and down completely randomly.
Pair Corralation between Caterpillar and AMA Group
Considering the 90-day investment horizon Caterpillar is expected to generate 34.04 times less return on investment than AMA Group. But when comparing it to its historical volatility, Caterpillar is 38.4 times less risky than AMA Group. It trades about 0.1 of its potential returns per unit of risk. AMA Group Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 8.00 in AMA Group Limited on September 4, 2024 and sell it today you would lose (3.25) from holding AMA Group Limited or give up 40.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Caterpillar vs. AMA Group Limited
Performance |
| Timeline |
| Caterpillar |
| AMA Group Limited |
Caterpillar and AMA Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and AMA Group
The main advantage of trading using opposite Caterpillar and AMA Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, AMA 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 AMA Group will offset losses from the drop in AMA Group's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Deere Company | Caterpillar vs. Lindsay | Caterpillar vs. Lion Electric Corp |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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