Correlation Between Caterpillar and VictoryShares Discovery
Can any of the company-specific risk be diversified away by investing in both Caterpillar and VictoryShares Discovery 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 VictoryShares Discovery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and VictoryShares Discovery Enhanced, you can compare the effects of market volatilities on Caterpillar and VictoryShares Discovery 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 VictoryShares Discovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and VictoryShares Discovery.
Diversification Opportunities for Caterpillar and VictoryShares Discovery
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and VictoryShares is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and VictoryShares Discovery Enhanc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares Discovery 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 VictoryShares Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares Discovery has no effect on the direction of Caterpillar i.e., Caterpillar and VictoryShares Discovery go up and down completely randomly.
Pair Corralation between Caterpillar and VictoryShares Discovery
Considering the 90-day investment horizon Caterpillar is expected to generate 1.33 times more return on investment than VictoryShares Discovery. However, Caterpillar is 1.33 times more volatile than VictoryShares Discovery Enhanced. It trades about 0.1 of its potential returns per unit of risk. VictoryShares Discovery Enhanced is currently generating about 0.11 per unit of risk. If you would invest 32,883 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 7,728 from holding Caterpillar or generate 23.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. VictoryShares Discovery Enhanc
Performance |
| Timeline |
| Caterpillar |
| VictoryShares Discovery |
Caterpillar and VictoryShares Discovery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and VictoryShares Discovery
The main advantage of trading using opposite Caterpillar and VictoryShares Discovery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, VictoryShares Discovery 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 VictoryShares Discovery will offset losses from the drop in VictoryShares Discovery's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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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