Correlation Between Caterpillar and AMP
Can any of the company-specific risk be diversified away by investing in both Caterpillar and AMP 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 AMP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and AMP, you can compare the effects of market volatilities on Caterpillar and AMP 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 AMP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and AMP.
Diversification Opportunities for Caterpillar and AMP
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and AMP is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AMP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMP 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 AMP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMP has no effect on the direction of Caterpillar i.e., Caterpillar and AMP go up and down completely randomly.
Pair Corralation between Caterpillar and AMP
Considering the 90-day investment horizon Caterpillar is expected to generate 0.65 times more return on investment than AMP. However, Caterpillar is 1.54 times less risky than AMP. It trades about 0.08 of its potential returns per unit of risk. AMP is currently generating about -0.02 per unit of risk. If you would invest 22,712 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 17,899 from holding Caterpillar or generate 78.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 58.99% |
| Values | Daily Returns |
Caterpillar vs. AMP
Performance |
| Timeline |
| Caterpillar |
| AMP |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and AMP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and AMP
The main advantage of trading using opposite Caterpillar and AMP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, AMP 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 AMP will offset losses from the drop in AMP's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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