Correlation Between Caterpillar and IShares Russell
Can any of the company-specific risk be diversified away by investing in both Caterpillar and IShares Russell 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 Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and iShares Russell Mid Cap, you can compare the effects of market volatilities on Caterpillar and IShares Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and IShares Russell.
Diversification Opportunities for Caterpillar and IShares Russell
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 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 Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Mid has no effect on the direction of Caterpillar i.e., Caterpillar and IShares Russell go up and down completely randomly.
Pair Corralation between Caterpillar and IShares Russell
Considering the 90-day investment horizon Caterpillar is expected to generate 1.72 times more return on investment than IShares Russell. However, Caterpillar is 1.72 times more volatile than iShares Russell Mid Cap. It trades about 0.12 of its potential returns per unit of risk. iShares Russell Mid Cap is currently generating about 0.14 per unit of risk. If you would invest 24,359 in Caterpillar on August 24, 2024 and sell it today you would earn a total of 14,600 from holding Caterpillar or generate 59.94% 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 Russell Mid Cap
Performance |
| Timeline |
| Caterpillar |
| iShares Russell Mid |
Caterpillar and IShares Russell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and IShares Russell
The main advantage of trading using opposite Caterpillar and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, IShares Russell 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 Russell will offset losses from the drop in IShares Russell's long position.| Caterpillar vs. Small Cap Core | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Mutual Of America | Caterpillar vs. Ep Emerging Markets |
| IShares Russell vs. JPMorgan Fundamental Data | IShares Russell vs. Vanguard Mid Cap Index | IShares Russell vs. SPDR SP 400 | IShares Russell 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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