Correlation Between Caterpillar and AmeraMex International
Can any of the company-specific risk be diversified away by investing in both Caterpillar and AmeraMex International 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 AmeraMex International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and AmeraMex International, you can compare the effects of market volatilities on Caterpillar and AmeraMex International 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 AmeraMex International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and AmeraMex International.
Diversification Opportunities for Caterpillar and AmeraMex International
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Caterpillar and AmeraMex is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AmeraMex International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmeraMex International 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 AmeraMex International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmeraMex International has no effect on the direction of Caterpillar i.e., Caterpillar and AmeraMex International go up and down completely randomly.
Pair Corralation between Caterpillar and AmeraMex International
Considering the 90-day investment horizon Caterpillar is expected to generate 3.47 times less return on investment than AmeraMex International. But when comparing it to its historical volatility, Caterpillar is 2.01 times less risky than AmeraMex International. It trades about 0.07 of its potential returns per unit of risk. AmeraMex International is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 38.00 in AmeraMex International on August 24, 2024 and sell it today you would earn a total of 4.00 from holding AmeraMex International or generate 10.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. AmeraMex International
Performance |
| Timeline |
| Caterpillar |
| AmeraMex International |
Caterpillar and AmeraMex International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and AmeraMex International
The main advantage of trading using opposite Caterpillar and AmeraMex International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, AmeraMex International 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 AmeraMex International will offset losses from the drop in AmeraMex International's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| AmeraMex International vs. Lion Electric Corp | AmeraMex International vs. Nikola Corp | AmeraMex International vs. Buhler Industries | AmeraMex International vs. Toyota Industries |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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