Correlation Between Caterpillar and MicroSectorsTM Oil

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Can any of the company-specific risk be diversified away by investing in both Caterpillar and MicroSectorsTM Oil 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 MicroSectorsTM Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and MicroSectorsTM Oil Gas, you can compare the effects of market volatilities on Caterpillar and MicroSectorsTM Oil 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 MicroSectorsTM Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and MicroSectorsTM Oil.

Diversification Opportunities for Caterpillar and MicroSectorsTM Oil

-0.69
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Caterpillar and MicroSectorsTM is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and MicroSectorsTM Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectorsTM Oil Gas 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 MicroSectorsTM Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectorsTM Oil Gas has no effect on the direction of Caterpillar i.e., Caterpillar and MicroSectorsTM Oil go up and down completely randomly.

Pair Corralation between Caterpillar and MicroSectorsTM Oil

Considering the 90-day investment horizon Caterpillar is expected to generate 0.43 times more return on investment than MicroSectorsTM Oil. However, Caterpillar is 2.32 times less risky than MicroSectorsTM Oil. It trades about 0.08 of its potential returns per unit of risk. MicroSectorsTM Oil Gas is currently generating about -0.02 per unit of risk. If you would invest  21,921  in Caterpillar on August 30, 2024 and sell it today you would earn a total of  18,449  from holding Caterpillar or generate 84.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  MicroSectorsTM Oil Gas

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.
MicroSectorsTM Oil Gas 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MicroSectorsTM Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Caterpillar and MicroSectorsTM Oil Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and MicroSectorsTM Oil

The main advantage of trading using opposite Caterpillar and MicroSectorsTM Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, MicroSectorsTM Oil 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 MicroSectorsTM Oil will offset losses from the drop in MicroSectorsTM Oil's long position.
The idea behind Caterpillar and MicroSectorsTM Oil Gas pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

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