Correlation Between Caterpillar and Dimensional Core
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Dimensional Core 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 Dimensional Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Dimensional Core Equity, you can compare the effects of market volatilities on Caterpillar and Dimensional Core 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 Dimensional Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Dimensional Core.
Diversification Opportunities for Caterpillar and Dimensional Core
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Dimensional is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Dimensional Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Core Equity 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 Dimensional Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Core Equity has no effect on the direction of Caterpillar i.e., Caterpillar and Dimensional Core go up and down completely randomly.
Pair Corralation between Caterpillar and Dimensional Core
Considering the 90-day investment horizon Caterpillar is expected to generate 2.45 times more return on investment than Dimensional Core. However, Caterpillar is 2.45 times more volatile than Dimensional Core Equity. It trades about 0.09 of its potential returns per unit of risk. Dimensional Core Equity is currently generating about 0.22 per unit of risk. If you would invest 38,751 in Caterpillar on August 30, 2024 and sell it today you would earn a total of 1,619 from holding Caterpillar or generate 4.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Dimensional Core Equity
Performance |
| Timeline |
| Caterpillar |
| Dimensional Core Equity |
Caterpillar and Dimensional Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Dimensional Core
The main advantage of trading using opposite Caterpillar and Dimensional Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Dimensional Core 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 Dimensional Core will offset losses from the drop in Dimensional Core's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Dimensional Core vs. Dimensional Targeted Value | Dimensional Core vs. Dimensional World ex | Dimensional Core vs. Dimensional Small Cap | Dimensional Core vs. Dimensional Core Equity |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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