Correlation Between Caterpillar and REX FANG
Can any of the company-specific risk be diversified away by investing in both Caterpillar and REX FANG 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 REX FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and REX FANG Innovation, you can compare the effects of market volatilities on Caterpillar and REX FANG 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 REX FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and REX FANG.
Diversification Opportunities for Caterpillar and REX FANG
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and REX is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and REX FANG Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REX FANG Innovation 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 REX FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REX FANG Innovation has no effect on the direction of Caterpillar i.e., Caterpillar and REX FANG go up and down completely randomly.
Pair Corralation between Caterpillar and REX FANG
Considering the 90-day investment horizon Caterpillar is expected to generate 1.58 times more return on investment than REX FANG. However, Caterpillar is 1.58 times more volatile than REX FANG Innovation. It trades about 0.1 of its potential returns per unit of risk. REX FANG Innovation is currently generating about 0.07 per unit of risk. If you would invest 32,883 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 7,728 from holding Caterpillar or generate 23.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. REX FANG Innovation
Performance |
| Timeline |
| Caterpillar |
| REX FANG Innovation |
Caterpillar and REX FANG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and REX FANG
The main advantage of trading using opposite Caterpillar and REX FANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, REX FANG 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 REX FANG will offset losses from the drop in REX FANG's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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