Correlation Between Caterpillar and Premium Nickel
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Premium Nickel 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 Premium Nickel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Premium Nickel Resources, you can compare the effects of market volatilities on Caterpillar and Premium Nickel 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 Premium Nickel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Premium Nickel.
Diversification Opportunities for Caterpillar and Premium Nickel
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Caterpillar and Premium is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Premium Nickel Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Nickel Resources 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 Premium Nickel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Nickel Resources has no effect on the direction of Caterpillar i.e., Caterpillar and Premium Nickel go up and down completely randomly.
Pair Corralation between Caterpillar and Premium Nickel
Considering the 90-day investment horizon Caterpillar is expected to under-perform the Premium Nickel. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 3.58 times less risky than Premium Nickel. The stock trades about -0.4 of its potential returns per unit of risk. The Premium Nickel Resources is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 27.00 in Premium Nickel Resources on December 1, 2024 and sell it today you would lose (1.00) from holding Premium Nickel Resources or give up 3.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 47.62% |
| Values | Daily Returns |
Caterpillar vs. Premium Nickel Resources
Performance |
| Timeline |
| Caterpillar |
| Premium Nickel Resources |
Risk-Adjusted Performance
Very Weak
Weak | Strong |
Caterpillar and Premium Nickel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Premium Nickel
The main advantage of trading using opposite Caterpillar and Premium Nickel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Premium Nickel 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 Premium Nickel will offset losses from the drop in Premium Nickel's long position.| Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
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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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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