Correlation Between Caterpillar and China Health
Can any of the company-specific risk be diversified away by investing in both Caterpillar and China Health 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 China Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and China Health Industries, you can compare the effects of market volatilities on Caterpillar and China Health 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 China Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and China Health.
Diversification Opportunities for Caterpillar and China Health
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Caterpillar and China is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and China Health Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Health Industries 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 China Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Health Industries has no effect on the direction of Caterpillar i.e., Caterpillar and China Health go up and down completely randomly.
Pair Corralation between Caterpillar and China Health
Considering the 90-day investment horizon Caterpillar is expected to generate 19.11 times less return on investment than China Health. But when comparing it to its historical volatility, Caterpillar is 26.77 times less risky than China Health. It trades about 0.1 of its potential returns per unit of risk. China Health Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 22.00 in China Health Industries on August 31, 2024 and sell it today you would earn a total of 11.00 from holding China Health Industries or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Caterpillar vs. China Health Industries
Performance |
| Timeline |
| Caterpillar |
| China Health Industries |
Caterpillar and China Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and China Health
The main advantage of trading using opposite Caterpillar and China Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, China Health 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 China Health will offset losses from the drop in China Health's long position.| Caterpillar vs. Deere Company | Caterpillar vs. Lindsay | Caterpillar vs. Alamo Group | Caterpillar vs. Manitowoc |
| China Health vs. Signet International Holdings | China Health vs. National Beverage Corp | China Health vs. PT Astra International | China Health vs. Vita Coco |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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