Correlation Between Caterpillar and South32
Can any of the company-specific risk be diversified away by investing in both Caterpillar and South32 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 South32 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and South32 Limited, you can compare the effects of market volatilities on Caterpillar and South32 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 South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and South32.
Diversification Opportunities for Caterpillar and South32
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and South32 is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and South32 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 Limited 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 South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 Limited has no effect on the direction of Caterpillar i.e., Caterpillar and South32 go up and down completely randomly.
Pair Corralation between Caterpillar and South32
Considering the 90-day investment horizon Caterpillar is expected to generate 0.44 times more return on investment than South32. However, Caterpillar is 2.28 times less risky than South32. It trades about 0.11 of its potential returns per unit of risk. South32 Limited is currently generating about 0.0 per unit of risk. If you would invest 32,694 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 7,917 from holding Caterpillar or generate 24.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.2% |
| Values | Daily Returns |
Caterpillar vs. South32 Limited
Performance |
| Timeline |
| Caterpillar |
| South32 Limited |
Caterpillar and South32 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and South32
The main advantage of trading using opposite Caterpillar and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
| South32 vs. IGO Limited | South32 vs. Anglo American PLC | South32 vs. TNG Limited | South32 vs. Amarc Resources |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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