Correlation Between Caterpillar and Innovator Russell
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Innovator 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 Innovator Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Innovator Russell 2000, you can compare the effects of market volatilities on Caterpillar and Innovator 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 Innovator Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Innovator Russell.
Diversification Opportunities for Caterpillar and Innovator Russell
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Innovator is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Innovator Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Russell 2000 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 Innovator Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Russell 2000 has no effect on the direction of Caterpillar i.e., Caterpillar and Innovator Russell go up and down completely randomly.
Pair Corralation between Caterpillar and Innovator Russell
Considering the 90-day investment horizon Caterpillar is expected to generate 1.09 times less return on investment than Innovator Russell. In addition to that, Caterpillar is 2.68 times more volatile than Innovator Russell 2000. It trades about 0.09 of its total potential returns per unit of risk. Innovator Russell 2000 is currently generating about 0.27 per unit of volatility. If you would invest 3,735 in Innovator Russell 2000 on August 29, 2024 and sell it today you would earn a total of 201.00 from holding Innovator Russell 2000 or generate 5.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Innovator Russell 2000
Performance |
| Timeline |
| Caterpillar |
| Innovator Russell 2000 |
Caterpillar and Innovator Russell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Innovator Russell
The main advantage of trading using opposite Caterpillar and Innovator Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Innovator 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 Innovator Russell will offset losses from the drop in Innovator Russell's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| Innovator Russell vs. Innovator Nasdaq 100 Power | Innovator Russell vs. Innovator MSCI Emerging | Innovator Russell vs. Innovator MSCI EAFE | Innovator Russell vs. Innovator SP 500 |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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