Correlation Between Caterpillar and CLP Holdings
Can any of the company-specific risk be diversified away by investing in both Caterpillar and CLP Holdings 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 CLP Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and CLP Holdings, you can compare the effects of market volatilities on Caterpillar and CLP Holdings 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 CLP Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and CLP Holdings.
Diversification Opportunities for Caterpillar and CLP Holdings
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and CLP is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and CLP Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLP Holdings 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 CLP Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLP Holdings has no effect on the direction of Caterpillar i.e., Caterpillar and CLP Holdings go up and down completely randomly.
Pair Corralation between Caterpillar and CLP Holdings
Considering the 90-day investment horizon Caterpillar is expected to generate 1.41 times more return on investment than CLP Holdings. However, Caterpillar is 1.41 times more volatile than CLP Holdings. It trades about 0.1 of its potential returns per unit of risk. CLP Holdings is currently generating about 0.04 per unit of risk. If you would invest 33,594 in Caterpillar on August 29, 2024 and sell it today you would earn a total of 7,189 from holding Caterpillar or generate 21.4% 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. CLP Holdings
Performance |
| Timeline |
| Caterpillar |
| CLP Holdings |
Caterpillar and CLP Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and CLP Holdings
The main advantage of trading using opposite Caterpillar and CLP Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, CLP Holdings 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 CLP Holdings will offset losses from the drop in CLP Holdings' long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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