Correlation Between Caterpillar and First Tractor
Can any of the company-specific risk be diversified away by investing in both Caterpillar and First Tractor 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 First Tractor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and First Tractor Co, you can compare the effects of market volatilities on Caterpillar and First Tractor 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 First Tractor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and First Tractor.
Diversification Opportunities for Caterpillar and First Tractor
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and First Tractor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Tractor 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 First Tractor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Tractor has no effect on the direction of Caterpillar i.e., Caterpillar and First Tractor go up and down completely randomly.
Pair Corralation between Caterpillar and First Tractor
Considering the 90-day investment horizon Caterpillar is expected to generate 3.45 times less return on investment than First Tractor. But when comparing it to its historical volatility, Caterpillar is 5.58 times less risky than First Tractor. It trades about 0.08 of its potential returns per unit of risk. First Tractor Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 456.00 in First Tractor Co on September 3, 2024 and sell it today you would earn a total of 779.00 from holding First Tractor Co or generate 170.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 84.44% |
| Values | Daily Returns |
Caterpillar vs. First Tractor Co
Performance |
| Timeline |
| Caterpillar |
| First Tractor |
Caterpillar and First Tractor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and First Tractor
The main advantage of trading using opposite Caterpillar and First Tractor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, First Tractor 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 First Tractor will offset losses from the drop in First Tractor's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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