Correlation Between Caterpillar and Fabxx
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Fabxx 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 Fabxx into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Fabxx, you can compare the effects of market volatilities on Caterpillar and Fabxx 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 Fabxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Fabxx.
Diversification Opportunities for Caterpillar and Fabxx
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Fabxx is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Fabxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabxx 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 Fabxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabxx has no effect on the direction of Caterpillar i.e., Caterpillar and Fabxx go up and down completely randomly.
Pair Corralation between Caterpillar and Fabxx
Considering the 90-day investment horizon Caterpillar is expected to generate 0.23 times more return on investment than Fabxx. However, Caterpillar is 4.4 times less risky than Fabxx. It trades about 0.16 of its potential returns per unit of risk. Fabxx is currently generating about -0.12 per unit of risk. If you would invest 33,902 in Caterpillar on September 2, 2024 and sell it today you would earn a total of 6,709 from holding Caterpillar or generate 19.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Fabxx
Performance |
| Timeline |
| Caterpillar |
| Fabxx |
Caterpillar and Fabxx Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Fabxx
The main advantage of trading using opposite Caterpillar and Fabxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Fabxx 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 Fabxx will offset losses from the drop in Fabxx's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Fabxx vs. Tax Managed Large Cap | Fabxx vs. Americafirst Large Cap | Fabxx vs. T Rowe Price | Fabxx vs. Qs Large Cap |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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