Correlation Between Caterpillar and Rev
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Rev 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 Rev into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Rev Group, you can compare the effects of market volatilities on Caterpillar and Rev 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 Rev. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Rev.
Diversification Opportunities for Caterpillar and Rev
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Caterpillar and Rev is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Rev Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rev Group 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 Rev. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rev Group has no effect on the direction of Caterpillar i.e., Caterpillar and Rev go up and down completely randomly.
Pair Corralation between Caterpillar and Rev
Considering the 90-day investment horizon Caterpillar is expected to generate 1.81 times less return on investment than Rev. But when comparing it to its historical volatility, Caterpillar is 1.51 times less risky than Rev. It trades about 0.08 of its potential returns per unit of risk. Rev Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,098 in Rev Group on August 28, 2024 and sell it today you would earn a total of 2,097 from holding Rev Group or generate 190.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Rev Group
Performance |
| Timeline |
| Caterpillar |
| Rev Group |
Caterpillar and Rev Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Rev
The main advantage of trading using opposite Caterpillar and Rev positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Rev 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 Rev will offset losses from the drop in Rev's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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