Correlation Between Caterpillar and China New
Can any of the company-specific risk be diversified away by investing in both Caterpillar and China New 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 New into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and China New Energy, you can compare the effects of market volatilities on Caterpillar and China New 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 New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and China New.
Diversification Opportunities for Caterpillar and China New
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and China is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and China New Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China New 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 China New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China New Energy has no effect on the direction of Caterpillar i.e., Caterpillar and China New go up and down completely randomly.
Pair Corralation between Caterpillar and China New
Considering the 90-day investment horizon Caterpillar is expected to generate 19.95 times less return on investment than China New. But when comparing it to its historical volatility, Caterpillar is 17.21 times less risky than China New. It trades about 0.17 of its potential returns per unit of risk. China New Energy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 0.40 in China New Energy on September 3, 2024 and sell it today you would earn a total of 0.40 from holding China New Energy or generate 100.0% 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. China New Energy
Performance |
| Timeline |
| Caterpillar |
| China New Energy |
Caterpillar and China New Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and China New
The main advantage of trading using opposite Caterpillar and China New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, China New 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 New will offset losses from the drop in China New's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
| China New vs. Manaris Corp | China New vs. Green Planet Bio | China New vs. Continental Beverage Brands | China New vs. Opus Magnum Ameris |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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