Correlation Between Caterpillar and Motley Fool
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Motley Fool 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 Motley Fool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Motley Fool Next, you can compare the effects of market volatilities on Caterpillar and Motley Fool 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 Motley Fool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Motley Fool.
Diversification Opportunities for Caterpillar and Motley Fool
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Motley is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Motley Fool Next in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motley Fool Next 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 Motley Fool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motley Fool Next has no effect on the direction of Caterpillar i.e., Caterpillar and Motley Fool go up and down completely randomly.
Pair Corralation between Caterpillar and Motley Fool
Considering the 90-day investment horizon Caterpillar is expected to generate 1.6 times more return on investment than Motley Fool. However, Caterpillar is 1.6 times more volatile than Motley Fool Next. It trades about 0.1 of its potential returns per unit of risk. Motley Fool Next is currently generating about 0.15 per unit of risk. If you would invest 32,883 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 7,728 from holding Caterpillar or generate 23.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Motley Fool Next
Performance |
| Timeline |
| Caterpillar |
| Motley Fool Next |
Caterpillar and Motley Fool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Motley Fool
The main advantage of trading using opposite Caterpillar and Motley Fool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Motley Fool 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 Motley Fool will offset losses from the drop in Motley Fool'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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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