Correlation Between Caterpillar and IShares Morningstar
Can any of the company-specific risk be diversified away by investing in both Caterpillar and IShares Morningstar 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 Morningstar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and iShares Morningstar Mid Cap, you can compare the effects of market volatilities on Caterpillar and IShares Morningstar 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 Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and IShares Morningstar.
Diversification Opportunities for Caterpillar and IShares Morningstar
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares Morningstar Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar Mid 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar Mid has no effect on the direction of Caterpillar i.e., Caterpillar and IShares Morningstar go up and down completely randomly.
Pair Corralation between Caterpillar and IShares Morningstar
Considering the 90-day investment horizon Caterpillar is expected to generate 2.0 times more return on investment than IShares Morningstar. However, Caterpillar is 2.0 times more volatile than iShares Morningstar Mid Cap. It trades about 0.06 of its potential returns per unit of risk. iShares Morningstar Mid Cap is currently generating about 0.06 per unit of risk. If you would invest 23,477 in Caterpillar on November 5, 2024 and sell it today you would earn a total of 13,667 from holding Caterpillar or generate 58.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Caterpillar vs. iShares Morningstar Mid Cap
Performance |
| Timeline |
| Caterpillar |
| iShares Morningstar Mid |
Caterpillar and IShares Morningstar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and IShares Morningstar
The main advantage of trading using opposite Caterpillar and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, IShares Morningstar 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 Morningstar will offset losses from the drop in IShares Morningstar's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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