Correlation Between Caterpillar and Liberty Broadband
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Liberty Broadband 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 Liberty Broadband into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Liberty Broadband, you can compare the effects of market volatilities on Caterpillar and Liberty Broadband 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 Liberty Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Liberty Broadband.
Diversification Opportunities for Caterpillar and Liberty Broadband
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Liberty is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Liberty Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband 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 Liberty Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Broadband has no effect on the direction of Caterpillar i.e., Caterpillar and Liberty Broadband go up and down completely randomly.
Pair Corralation between Caterpillar and Liberty Broadband
Considering the 90-day investment horizon Caterpillar is expected to generate 0.66 times more return on investment than Liberty Broadband. However, Caterpillar is 1.51 times less risky than Liberty Broadband. It trades about -0.08 of its potential returns per unit of risk. Liberty Broadband is currently generating about -0.22 per unit of risk. If you would invest 38,446 in Caterpillar on September 19, 2024 and sell it today you would lose (866.00) from holding Caterpillar or give up 2.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Liberty Broadband
Performance |
| Timeline |
| Caterpillar |
| Liberty Broadband |
Caterpillar and Liberty Broadband Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Liberty Broadband
The main advantage of trading using opposite Caterpillar and Liberty Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Liberty Broadband 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 Liberty Broadband will offset losses from the drop in Liberty Broadband's long position.| Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
| Liberty Broadband vs. Boston Beer | Liberty Broadband vs. Willamette Valley Vineyards | Liberty Broadband vs. Sphere Entertainment Co | Liberty Broadband vs. Pinterest |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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