Correlation Between Caterpillar and Magellan Midstream
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Magellan Midstream 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 Magellan Midstream into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Magellan Midstream Partners, you can compare the effects of market volatilities on Caterpillar and Magellan Midstream 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 Magellan Midstream. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Magellan Midstream.
Diversification Opportunities for Caterpillar and Magellan Midstream
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Magellan is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Magellan Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magellan Midstream 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 Magellan Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magellan Midstream has no effect on the direction of Caterpillar i.e., Caterpillar and Magellan Midstream go up and down completely randomly.
Pair Corralation between Caterpillar and Magellan Midstream
Considering the 90-day investment horizon Caterpillar is expected to generate 1.18 times less return on investment than Magellan Midstream. In addition to that, Caterpillar is 1.71 times more volatile than Magellan Midstream Partners. It trades about 0.1 of its total potential returns per unit of risk. Magellan Midstream Partners is currently generating about 0.2 per unit of volatility. If you would invest 6,158 in Magellan Midstream Partners on August 31, 2024 and sell it today you would earn a total of 393.00 from holding Magellan Midstream Partners or generate 6.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 8.56% |
| Values | Daily Returns |
Caterpillar vs. Magellan Midstream Partners
Performance |
| Timeline |
| Caterpillar |
| Magellan Midstream |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Caterpillar and Magellan Midstream Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Magellan Midstream
The main advantage of trading using opposite Caterpillar and Magellan Midstream positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Magellan Midstream 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 Magellan Midstream will offset losses from the drop in Magellan Midstream's long position.| Caterpillar vs. Deere Company | Caterpillar vs. Lindsay | Caterpillar vs. Alamo Group | Caterpillar vs. Manitowoc |
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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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