Correlation Between Caterpillar and American Premium
Can any of the company-specific risk be diversified away by investing in both Caterpillar and American Premium 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 American Premium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and American Premium Water, you can compare the effects of market volatilities on Caterpillar and American Premium 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 American Premium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and American Premium.
Diversification Opportunities for Caterpillar and American Premium
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Caterpillar and American is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and American Premium Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Premium Water 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 American Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Premium Water has no effect on the direction of Caterpillar i.e., Caterpillar and American Premium go up and down completely randomly.
Pair Corralation between Caterpillar and American Premium
Considering the 90-day investment horizon Caterpillar is expected to under-perform the American Premium. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 202.9 times less risky than American Premium. The stock trades about -0.05 of its potential returns per unit of risk. The American Premium Water is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 0.01 in American Premium Water on October 23, 2024 and sell it today you would earn a total of 0.00 from holding American Premium Water or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. American Premium Water
Performance |
| Timeline |
| Caterpillar |
| American Premium Water |
Caterpillar and American Premium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and American Premium
The main advantage of trading using opposite Caterpillar and American Premium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, American Premium 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 American Premium will offset losses from the drop in American Premium's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| American Premium vs. First Tractor | American Premium vs. Ag Growth International | American Premium vs. AmeraMex International | American Premium vs. Arts Way Manufacturing Co |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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