Correlation Between Caterpillar and IShares
Can any of the company-specific risk be diversified away by investing in both Caterpillar and IShares 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 IShares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and IShares, you can compare the effects of market volatilities on Caterpillar and IShares 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 IShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and IShares.
Diversification Opportunities for Caterpillar and IShares
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and IShares is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and IShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares 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 IShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares has no effect on the direction of Caterpillar i.e., Caterpillar and IShares go up and down completely randomly.
Pair Corralation between Caterpillar and IShares
Considering the 90-day investment horizon Caterpillar is expected to generate 1.51 times more return on investment than IShares. However, Caterpillar is 1.51 times more volatile than IShares. It trades about 0.1 of its potential returns per unit of risk. IShares is currently generating about 0.14 per unit of risk. If you would invest 22,843 in Caterpillar on August 31, 2024 and sell it today you would earn a total of 17,768 from holding Caterpillar or generate 77.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 8.29% |
| Values | Daily Returns |
Caterpillar vs. IShares
Performance |
| Timeline |
| Caterpillar |
| IShares |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and IShares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and IShares
The main advantage of trading using opposite Caterpillar and IShares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, IShares 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 IShares will offset losses from the drop in IShares' long position.| Caterpillar vs. Deere Company | Caterpillar vs. Lindsay | Caterpillar vs. Alamo Group | Caterpillar vs. Manitowoc |
| IShares vs. iShares MSCI United | IShares vs. iShares MSCI Finland | IShares vs. iShares MSCI Ireland | IShares vs. iShares MSCI Norway |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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