Correlation Between Caterpillar and Fortune Brands
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Fortune Brands 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 Fortune Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Fortune Brands Home, you can compare the effects of market volatilities on Caterpillar and Fortune Brands 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 Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Fortune Brands.
Diversification Opportunities for Caterpillar and Fortune Brands
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Fortune is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home 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 Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of Caterpillar i.e., Caterpillar and Fortune Brands go up and down completely randomly.
Pair Corralation between Caterpillar and Fortune Brands
If you would invest (100.00) in Fortune Brands Home on September 13, 2024 and sell it today you would earn a total of 100.00 from holding Fortune Brands Home or generate -100.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 0.0% |
Values | Daily Returns |
Caterpillar vs. Fortune Brands Home
Performance |
Timeline |
Caterpillar |
Fortune Brands Home |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and Fortune Brands Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caterpillar and Fortune Brands
The main advantage of trading using opposite Caterpillar and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Fortune Brands 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 Fortune Brands will offset losses from the drop in Fortune Brands' long position.Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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