Correlation Between Caterpillar and MicroSectors FANG
Can any of the company-specific risk be diversified away by investing in both Caterpillar and MicroSectors 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 MicroSectors FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and MicroSectors FANG Index, you can compare the effects of market volatilities on Caterpillar and MicroSectors 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 MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and MicroSectors FANG.
Diversification Opportunities for Caterpillar and MicroSectors FANG
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and MicroSectors is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index 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 MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of Caterpillar i.e., Caterpillar and MicroSectors FANG go up and down completely randomly.
Pair Corralation between Caterpillar and MicroSectors FANG
Considering the 90-day investment horizon Caterpillar is expected to generate 3.82 times less return on investment than MicroSectors FANG. But when comparing it to its historical volatility, Caterpillar is 1.96 times less risky than MicroSectors FANG. It trades about 0.07 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 41,613 in MicroSectors FANG Index on August 26, 2024 and sell it today you would earn a total of 9,287 from holding MicroSectors FANG Index or generate 22.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. MicroSectors FANG Index
Performance |
| Timeline |
| Caterpillar |
| MicroSectors FANG Index |
Caterpillar and MicroSectors FANG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and MicroSectors FANG
The main advantage of trading using opposite Caterpillar and MicroSectors FANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, MicroSectors 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 MicroSectors FANG will offset losses from the drop in MicroSectors FANG's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| MicroSectors FANG vs. Direxion Daily SP | MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. Direxion Daily Semiconductor |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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