Correlation Between Caterpillar and Farmers
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Farmers 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 Farmers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Farmers And Merchants, you can compare the effects of market volatilities on Caterpillar and Farmers 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 Farmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Farmers.
Diversification Opportunities for Caterpillar and Farmers
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Farmers is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Farmers And Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers And Merchants 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 Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers And Merchants has no effect on the direction of Caterpillar i.e., Caterpillar and Farmers go up and down completely randomly.
Pair Corralation between Caterpillar and Farmers
Considering the 90-day investment horizon Caterpillar is expected to generate 3.51 times more return on investment than Farmers. However, Caterpillar is 3.51 times more volatile than Farmers And Merchants. It trades about 0.08 of its potential returns per unit of risk. Farmers And Merchants is currently generating about 0.25 per unit of risk. If you would invest 39,061 in Caterpillar on August 28, 2024 and sell it today you would earn a total of 1,504 from holding Caterpillar or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Farmers And Merchants
Performance |
| Timeline |
| Caterpillar |
| Farmers And Merchants |
Caterpillar and Farmers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Farmers
The main advantage of trading using opposite Caterpillar and Farmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Farmers 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 Farmers will offset losses from the drop in Farmers' long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| Farmers vs. First National Bank | Farmers vs. Farmers Merchants Bancorp | Farmers vs. Exchange Bank | Farmers vs. First National of |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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