Correlation Between Caterpillar and T Rowe
Can any of the company-specific risk be diversified away by investing in both Caterpillar and T Rowe 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 T Rowe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and T Rowe Price, you can compare the effects of market volatilities on Caterpillar and T Rowe 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 T Rowe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and T Rowe.
Diversification Opportunities for Caterpillar and T Rowe
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and TBLCX is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price 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 T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of Caterpillar i.e., Caterpillar and T Rowe go up and down completely randomly.
Pair Corralation between Caterpillar and T Rowe
Considering the 90-day investment horizon Caterpillar is expected to generate 6.97 times more return on investment than T Rowe. However, Caterpillar is 6.97 times more volatile than T Rowe Price. It trades about 0.08 of its potential returns per unit of risk. T Rowe Price is currently generating about 0.11 per unit of risk. If you would invest 39,061 in Caterpillar on August 28, 2024 and sell it today you would earn a total of 1,504 from holding Caterpillar or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. T Rowe Price
Performance |
| Timeline |
| Caterpillar |
| T Rowe Price |
Caterpillar and T Rowe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and T Rowe
The main advantage of trading using opposite Caterpillar and T Rowe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, T Rowe 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 T Rowe will offset losses from the drop in T Rowe'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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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