Correlation Between Caterpillar and WisdomTree
Can any of the company-specific risk be diversified away by investing in both Caterpillar and WisdomTree 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 WisdomTree into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and WisdomTree, you can compare the effects of market volatilities on Caterpillar and WisdomTree 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 WisdomTree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and WisdomTree.
Diversification Opportunities for Caterpillar and WisdomTree
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and WisdomTree is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and WisdomTree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree 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 WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree has no effect on the direction of Caterpillar i.e., Caterpillar and WisdomTree go up and down completely randomly.
Pair Corralation between Caterpillar and WisdomTree
If you would invest 37,924 in Caterpillar on August 31, 2024 and sell it today you would earn a total of 2,446 from holding Caterpillar or generate 6.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 4.55% |
| Values | Daily Returns |
Caterpillar vs. WisdomTree
Performance |
| Timeline |
| Caterpillar |
| WisdomTree |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and WisdomTree Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and WisdomTree
The main advantage of trading using opposite Caterpillar and WisdomTree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, WisdomTree 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 WisdomTree will offset losses from the drop in WisdomTree's long position.| Caterpillar vs. Deere Company | Caterpillar vs. Lindsay | Caterpillar vs. Alamo Group | Caterpillar vs. Manitowoc |
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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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