Correlation Between Caterpillar and PGIM Rock
Can any of the company-specific risk be diversified away by investing in both Caterpillar and PGIM Rock 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 PGIM Rock into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and PGIM Rock ETF, you can compare the effects of market volatilities on Caterpillar and PGIM Rock 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 PGIM Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and PGIM Rock.
Diversification Opportunities for Caterpillar and PGIM Rock
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and PGIM is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and PGIM Rock ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Rock ETF 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 PGIM Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Rock ETF has no effect on the direction of Caterpillar i.e., Caterpillar and PGIM Rock go up and down completely randomly.
Pair Corralation between Caterpillar and PGIM Rock
Considering the 90-day investment horizon Caterpillar is expected to generate 9.79 times more return on investment than PGIM Rock. However, Caterpillar is 9.79 times more volatile than PGIM Rock ETF. It trades about 0.07 of its potential returns per unit of risk. PGIM Rock ETF is currently generating about 0.23 per unit of risk. If you would invest 38,597 in Caterpillar on August 26, 2024 and sell it today you would earn a total of 1,152 from holding Caterpillar or generate 2.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. PGIM Rock ETF
Performance |
| Timeline |
| Caterpillar |
| PGIM Rock ETF |
Caterpillar and PGIM Rock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and PGIM Rock
The main advantage of trading using opposite Caterpillar and PGIM Rock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, PGIM Rock 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 PGIM Rock will offset losses from the drop in PGIM Rock's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| PGIM Rock vs. First Trust Cboe | PGIM Rock vs. FT Cboe Vest | PGIM Rock vs. Innovator SP 500 | PGIM Rock vs. FT Cboe Vest |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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