Correlation Between Caterpillar and Chevron Corp
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Chevron Corp 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 Chevron Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Chevron Corp, you can compare the effects of market volatilities on Caterpillar and Chevron Corp 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 Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Chevron Corp.
Diversification Opportunities for Caterpillar and Chevron Corp
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Chevron is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Chevron Corp go up and down completely randomly.
Pair Corralation between Caterpillar and Chevron Corp
Considering the 90-day investment horizon Caterpillar is expected to under-perform the Chevron Corp. In addition to that, Caterpillar is 1.02 times more volatile than Chevron Corp. It trades about -0.07 of its total potential returns per unit of risk. Chevron Corp is currently generating about 0.06 per unit of volatility. If you would invest 15,492 in Chevron Corp on September 12, 2024 and sell it today you would earn a total of 208.00 from holding Chevron Corp or generate 1.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Chevron Corp
Performance |
| Timeline |
| Caterpillar |
| Chevron Corp |
Caterpillar and Chevron Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Chevron Corp
The main advantage of trading using opposite Caterpillar and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.| Caterpillar vs. Victory Integrity Smallmid Cap | Caterpillar vs. Hilton Worldwide Holdings | Caterpillar vs. NVIDIA | Caterpillar vs. JPMorgan Chase Co |
| Chevron Corp vs. Victory Integrity Smallmid Cap | Chevron Corp vs. Hilton Worldwide Holdings | Chevron Corp vs. NVIDIA | Chevron Corp vs. JPMorgan Chase Co |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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