Correlation Between Caterpillar and PHLX Oil
Can any of the company-specific risk be diversified away by investing in both Caterpillar and PHLX 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 PHLX Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and PHLX Oil Service, you can compare the effects of market volatilities on Caterpillar and PHLX 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 PHLX Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and PHLX Oil.
Diversification Opportunities for Caterpillar and PHLX Oil
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and PHLX is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and PHLX Oil Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHLX Oil Service 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 PHLX Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHLX Oil Service has no effect on the direction of Caterpillar i.e., Caterpillar and PHLX Oil go up and down completely randomly.
Pair Corralation between Caterpillar and PHLX Oil
Considering the 90-day investment horizon Caterpillar is expected to generate 0.99 times more return on investment than PHLX Oil. However, Caterpillar is 1.01 times less risky than PHLX Oil. It trades about 0.05 of its potential returns per unit of risk. PHLX Oil Service is currently generating about -0.01 per unit of risk. If you would invest 31,879 in Caterpillar on November 3, 2024 and sell it today you would earn a total of 5,265 from holding Caterpillar or generate 16.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Caterpillar vs. PHLX Oil Service
Performance |
| Timeline |
Caterpillar and PHLX Oil Volatility Contrast
Predicted Return Density |
| Returns |
Caterpillar
Pair trading matchups for Caterpillar
PHLX Oil Service
Pair trading matchups for PHLX Oil
Pair Trading with Caterpillar and PHLX Oil
The main advantage of trading using opposite Caterpillar and PHLX Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, PHLX 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 PHLX Oil will offset losses from the drop in PHLX Oil's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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