Correlation Between Caterpillar and Glencore PLC
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Glencore PLC 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 Glencore PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Glencore PLC ADR, you can compare the effects of market volatilities on Caterpillar and Glencore PLC 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 Glencore PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Glencore PLC.
Diversification Opportunities for Caterpillar and Glencore PLC
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Glencore is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Glencore PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore PLC ADR 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 Glencore PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Glencore PLC ADR has no effect on the direction of Caterpillar i.e., Caterpillar and Glencore PLC go up and down completely randomly.
Pair Corralation between Caterpillar and Glencore PLC
Considering the 90-day investment horizon Caterpillar is expected to generate 0.56 times more return on investment than Glencore PLC. However, Caterpillar is 1.78 times less risky than Glencore PLC. It trades about -0.4 of its potential returns per unit of risk. Glencore PLC ADR is currently generating about -0.24 per unit of risk. If you would invest 37,498 in Caterpillar on December 1, 2024 and sell it today you would lose (3,498) from holding Caterpillar or give up 9.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Glencore PLC ADR
Performance |
| Timeline |
| Caterpillar |
| Glencore PLC ADR |
Caterpillar and Glencore PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Glencore PLC
The main advantage of trading using opposite Caterpillar and Glencore PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Glencore PLC 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 Glencore PLC will offset losses from the drop in Glencore PLC's long position.| Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
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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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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