Correlation Between Caterpillar and Sprucegrove International
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Sprucegrove International 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 Sprucegrove International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Sprucegrove International Equity, you can compare the effects of market volatilities on Caterpillar and Sprucegrove International 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 Sprucegrove International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Sprucegrove International.
Diversification Opportunities for Caterpillar and Sprucegrove International
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Sprucegrove is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Sprucegrove International Equi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprucegrove International 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 Sprucegrove International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprucegrove International has no effect on the direction of Caterpillar i.e., Caterpillar and Sprucegrove International go up and down completely randomly.
Pair Corralation between Caterpillar and Sprucegrove International
Considering the 90-day investment horizon Caterpillar is expected to generate 1.06 times more return on investment than Sprucegrove International. However, Caterpillar is 1.06 times more volatile than Sprucegrove International Equity. It trades about -0.41 of its potential returns per unit of risk. Sprucegrove International Equity is currently generating about -0.43 per unit of risk. If you would invest 39,926 in Caterpillar on October 9, 2024 and sell it today you would lose (3,506) from holding Caterpillar or give up 8.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Sprucegrove International Equi
Performance |
| Timeline |
| Caterpillar |
| Sprucegrove International |
Caterpillar and Sprucegrove International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Sprucegrove International
The main advantage of trading using opposite Caterpillar and Sprucegrove International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Sprucegrove International 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 Sprucegrove International will offset losses from the drop in Sprucegrove International's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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