Correlation Between Caterpillar and Xtrackers MSCI
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Xtrackers MSCI 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 Xtrackers MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Xtrackers MSCI Kokusai, you can compare the effects of market volatilities on Caterpillar and Xtrackers MSCI 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 Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Xtrackers MSCI.
Diversification Opportunities for Caterpillar and Xtrackers MSCI
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Xtrackers is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Xtrackers MSCI Kokusai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI Kokusai 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 Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI Kokusai has no effect on the direction of Caterpillar i.e., Caterpillar and Xtrackers MSCI go up and down completely randomly.
Pair Corralation between Caterpillar and Xtrackers MSCI
Considering the 90-day investment horizon Caterpillar is expected to generate 3.48 times more return on investment than Xtrackers MSCI. However, Caterpillar is 3.48 times more volatile than Xtrackers MSCI Kokusai. It trades about 0.05 of its potential returns per unit of risk. Xtrackers MSCI Kokusai is currently generating about 0.11 per unit of risk. If you would invest 39,061 in Caterpillar on August 27, 2024 and sell it today you would earn a total of 688.00 from holding Caterpillar or generate 1.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Xtrackers MSCI Kokusai
Performance |
| Timeline |
| Caterpillar |
| Xtrackers MSCI Kokusai |
Caterpillar and Xtrackers MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Xtrackers MSCI
The main advantage of trading using opposite Caterpillar and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Xtrackers MSCI 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 Xtrackers MSCI will offset losses from the drop in Xtrackers MSCI's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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