Correlation Between Caterpillar and North Peak
Can any of the company-specific risk be diversified away by investing in both Caterpillar and North Peak 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 North Peak into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and North Peak Resources, you can compare the effects of market volatilities on Caterpillar and North Peak 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 North Peak. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and North Peak.
Diversification Opportunities for Caterpillar and North Peak
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and North is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and North Peak Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Peak Resources 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 North Peak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Peak Resources has no effect on the direction of Caterpillar i.e., Caterpillar and North Peak go up and down completely randomly.
Pair Corralation between Caterpillar and North Peak
Considering the 90-day investment horizon Caterpillar is expected to generate 1.09 times less return on investment than North Peak. But when comparing it to its historical volatility, Caterpillar is 3.54 times less risky than North Peak. It trades about 0.08 of its potential returns per unit of risk. North Peak Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 62.00 in North Peak Resources on August 29, 2024 and sell it today you would lose (10.00) from holding North Peak Resources or give up 16.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. North Peak Resources
Performance |
| Timeline |
| Caterpillar |
| North Peak Resources |
Caterpillar and North Peak Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and North Peak
The main advantage of trading using opposite Caterpillar and North Peak positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, North Peak 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 North Peak will offset losses from the drop in North Peak's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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