Correlation Between Caterpillar and Kawasaki Heavy
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Kawasaki Heavy 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 Kawasaki Heavy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Kawasaki Heavy Industries, you can compare the effects of market volatilities on Caterpillar and Kawasaki Heavy 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 Kawasaki Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Kawasaki Heavy.
Diversification Opportunities for Caterpillar and Kawasaki Heavy
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Kawasaki is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Kawasaki Heavy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kawasaki Heavy Industries 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 Kawasaki Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kawasaki Heavy Industries has no effect on the direction of Caterpillar i.e., Caterpillar and Kawasaki Heavy go up and down completely randomly.
Pair Corralation between Caterpillar and Kawasaki Heavy
Considering the 90-day investment horizon Caterpillar is expected to generate 0.73 times more return on investment than Kawasaki Heavy. However, Caterpillar is 1.38 times less risky than Kawasaki Heavy. It trades about 0.17 of its potential returns per unit of risk. Kawasaki Heavy Industries is currently generating about 0.02 per unit of risk. If you would invest 37,652 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 2,959 from holding Caterpillar or generate 7.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Kawasaki Heavy Industries
Performance |
| Timeline |
| Caterpillar |
| Kawasaki Heavy Industries |
Caterpillar and Kawasaki Heavy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Kawasaki Heavy
The main advantage of trading using opposite Caterpillar and Kawasaki Heavy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Kawasaki Heavy 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 Kawasaki Heavy will offset losses from the drop in Kawasaki Heavy's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
| Kawasaki Heavy vs. Dear Cashmere Holding | Kawasaki Heavy vs. Goff Corp | Kawasaki Heavy vs. Wialan Technologies | Kawasaki Heavy vs. Cgrowth Capital |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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