Correlation Between Caterpillar and Capital Group
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Capital 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 Capital Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Capital Group Core, you can compare the effects of market volatilities on Caterpillar and Capital 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 Capital Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Capital Group.
Diversification Opportunities for Caterpillar and Capital Group
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Capital is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Capital Group Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Core 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 Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Core has no effect on the direction of Caterpillar i.e., Caterpillar and Capital Group go up and down completely randomly.
Pair Corralation between Caterpillar and Capital Group
Considering the 90-day investment horizon Caterpillar is expected to generate 5.62 times more return on investment than Capital Group. However, Caterpillar is 5.62 times more volatile than Capital Group Core. It trades about 0.07 of its potential returns per unit of risk. Capital Group Core is currently generating about 0.07 per unit of risk. If you would invest 33,021 in Caterpillar on August 27, 2024 and sell it today you would earn a total of 6,728 from holding Caterpillar or generate 20.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Capital Group Core
Performance |
| Timeline |
| Caterpillar |
| Capital Group Core |
Caterpillar and Capital Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Capital Group
The main advantage of trading using opposite Caterpillar and Capital Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Capital 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 Capital Group will offset losses from the drop in Capital Group's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| Capital Group vs. First Trust Low | Capital Group vs. First Trust Enhanced | Capital Group vs. First Trust Tactical | Capital Group vs. First Trust Managed |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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