Correlation Between Caterpillar and IShares Core
Can any of the company-specific risk be diversified away by investing in both Caterpillar and IShares Core 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 IShares Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and iShares Core SP, you can compare the effects of market volatilities on Caterpillar and IShares Core 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 IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and IShares Core.
Diversification Opportunities for Caterpillar and IShares Core
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and IShares is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP 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 IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Caterpillar i.e., Caterpillar and IShares Core go up and down completely randomly.
Pair Corralation between Caterpillar and IShares Core
Considering the 90-day investment horizon Caterpillar is expected to generate 2.13 times less return on investment than IShares Core. In addition to that, Caterpillar is 2.0 times more volatile than iShares Core SP. It trades about 0.07 of its total potential returns per unit of risk. iShares Core SP is currently generating about 0.29 per unit of volatility. If you would invest 6,212 in iShares Core SP on August 26, 2024 and sell it today you would earn a total of 472.00 from holding iShares Core SP or generate 7.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. iShares Core SP
Performance |
| Timeline |
| Caterpillar |
| iShares Core SP |
Caterpillar and IShares Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and IShares Core
The main advantage of trading using opposite Caterpillar and IShares Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, IShares Core 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 IShares Core will offset losses from the drop in IShares Core's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| IShares Core vs. JPMorgan Fundamental Data | IShares Core vs. Vanguard Mid Cap Index | IShares Core vs. SPDR SP 400 | IShares Core vs. SPDR SP 400 |
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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