Correlation Between Caterpillar and Transamerica Large
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Transamerica Large 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 Transamerica Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Transamerica Large Cap, you can compare the effects of market volatilities on Caterpillar and Transamerica Large 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 Transamerica Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Transamerica Large.
Diversification Opportunities for Caterpillar and Transamerica Large
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Transamerica is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Transamerica Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Cap 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 Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Cap has no effect on the direction of Caterpillar i.e., Caterpillar and Transamerica Large go up and down completely randomly.
Pair Corralation between Caterpillar and Transamerica Large
Considering the 90-day investment horizon Caterpillar is expected to generate 3.22 times more return on investment than Transamerica Large. However, Caterpillar is 3.22 times more volatile than Transamerica Large Cap. It trades about 0.16 of its potential returns per unit of risk. Transamerica Large Cap is currently generating about 0.29 per unit of risk. If you would invest 37,620 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 2,991 from holding Caterpillar or generate 7.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Caterpillar vs. Transamerica Large Cap
Performance |
| Timeline |
| Caterpillar |
| Transamerica Large Cap |
Caterpillar and Transamerica Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Transamerica Large
The main advantage of trading using opposite Caterpillar and Transamerica Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Transamerica Large 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 Transamerica Large will offset losses from the drop in Transamerica Large'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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