Correlation Between Caterpillar and Avanti Energy
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Avanti Energy 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 Avanti Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Avanti Energy, you can compare the effects of market volatilities on Caterpillar and Avanti Energy 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 Avanti Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Avanti Energy.
Diversification Opportunities for Caterpillar and Avanti Energy
-0.79 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Caterpillar and Avanti is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Avanti Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanti Energy 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 Avanti Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanti Energy has no effect on the direction of Caterpillar i.e., Caterpillar and Avanti Energy go up and down completely randomly.
Pair Corralation between Caterpillar and Avanti Energy
Considering the 90-day investment horizon Caterpillar is expected to generate 0.4 times more return on investment than Avanti Energy. However, Caterpillar is 2.48 times less risky than Avanti Energy. It trades about 0.16 of its potential returns per unit of risk. Avanti Energy is currently generating about -0.09 per unit of risk. If you would invest 37,620 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 2,991 from holding Caterpillar or generate 7.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Avanti Energy
Performance |
| Timeline |
| Caterpillar |
| Avanti Energy |
Caterpillar and Avanti Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Avanti Energy
The main advantage of trading using opposite Caterpillar and Avanti Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Avanti Energy 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 Avanti Energy will offset losses from the drop in Avanti Energy's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Avanti Energy vs. Desert Mountain Energy | Avanti Energy vs. Avanti Energy | Avanti Energy vs. Royal Helium | Avanti Energy vs. Total Helium |
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.
Other Complementary Tools
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios |