Correlation Between Caterpillar and IndexIQ
Can any of the company-specific risk be diversified away by investing in both Caterpillar and IndexIQ 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 IndexIQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and IndexIQ, you can compare the effects of market volatilities on Caterpillar and IndexIQ 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 IndexIQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and IndexIQ.
Diversification Opportunities for Caterpillar and IndexIQ
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and IndexIQ is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ 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 IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of Caterpillar i.e., Caterpillar and IndexIQ go up and down completely randomly.
Pair Corralation between Caterpillar and IndexIQ
Considering the 90-day investment horizon Caterpillar is expected to generate 1.69 times more return on investment than IndexIQ. However, Caterpillar is 1.69 times more volatile than IndexIQ. It trades about 0.08 of its potential returns per unit of risk. IndexIQ is currently generating about 0.02 per unit of risk. If you would invest 22,477 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 18,134 from holding Caterpillar or generate 80.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 30.91% |
| Values | Daily Returns |
Caterpillar vs. IndexIQ
Performance |
| Timeline |
| Caterpillar |
| IndexIQ |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and IndexIQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and IndexIQ
The main advantage of trading using opposite Caterpillar and IndexIQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, IndexIQ 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 IndexIQ will offset losses from the drop in IndexIQ's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| IndexIQ vs. VanEck Natural Resources | IndexIQ vs. IQ Merger Arbitrage | IndexIQ vs. SPDR SP Global | IndexIQ vs. IQ Hedge Multi Strategy |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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