Correlation Between Caterpillar and Galane Gold
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Galane Gold 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 Galane Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Galane Gold, you can compare the effects of market volatilities on Caterpillar and Galane Gold 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 Galane Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Galane Gold.
Diversification Opportunities for Caterpillar and Galane Gold
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Galane is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Galane Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galane Gold 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 Galane Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galane Gold has no effect on the direction of Caterpillar i.e., Caterpillar and Galane Gold go up and down completely randomly.
Pair Corralation between Caterpillar and Galane Gold
Considering the 90-day investment horizon Caterpillar is expected to generate 1.86 times less return on investment than Galane Gold. But when comparing it to its historical volatility, Caterpillar is 4.22 times less risky than Galane Gold. It trades about 0.08 of its potential returns per unit of risk. Galane Gold is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 24.00 in Galane Gold on September 3, 2024 and sell it today you would lose (1.00) from holding Galane Gold or give up 4.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Galane Gold
Performance |
| Timeline |
| Caterpillar |
| Galane Gold |
Caterpillar and Galane Gold Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Galane Gold
The main advantage of trading using opposite Caterpillar and Galane Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Galane Gold 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 Galane Gold will offset losses from the drop in Galane Gold's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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