Correlation Between Caterpillar and Western Magnesium
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Western Magnesium 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 Western Magnesium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Western Magnesium, you can compare the effects of market volatilities on Caterpillar and Western Magnesium 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 Western Magnesium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Western Magnesium.
Diversification Opportunities for Caterpillar and Western Magnesium
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Western is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Western Magnesium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Magnesium 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 Western Magnesium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Magnesium has no effect on the direction of Caterpillar i.e., Caterpillar and Western Magnesium go up and down completely randomly.
Pair Corralation between Caterpillar and Western Magnesium
Considering the 90-day investment horizon Caterpillar is expected to generate 11.25 times less return on investment than Western Magnesium. But when comparing it to its historical volatility, Caterpillar is 26.68 times less risky than Western Magnesium. It trades about 0.08 of its potential returns per unit of risk. Western Magnesium is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 8.76 in Western Magnesium on September 2, 2024 and sell it today you would lose (8.76) from holding Western Magnesium or give up 100.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Caterpillar vs. Western Magnesium
Performance |
| Timeline |
| Caterpillar |
| Western Magnesium |
Caterpillar and Western Magnesium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Western Magnesium
The main advantage of trading using opposite Caterpillar and Western Magnesium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Western Magnesium 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 Western Magnesium will offset losses from the drop in Western Magnesium's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Western Magnesium vs. ATT Inc | Western Magnesium vs. Merck Company | Western Magnesium vs. Walt Disney | Western Magnesium vs. Caterpillar |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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