Correlation Between Caterpillar and Thermal Energy
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Thermal Energy 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 Thermal Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Thermal Energy International, you can compare the effects of market volatilities on Caterpillar and Thermal Energy 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 Thermal Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Thermal Energy.
Diversification Opportunities for Caterpillar and Thermal Energy
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Caterpillar and Thermal is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Thermal Energy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermal Energy Inter 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 Thermal Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermal Energy Inter has no effect on the direction of Caterpillar i.e., Caterpillar and Thermal Energy go up and down completely randomly.
Pair Corralation between Caterpillar and Thermal Energy
Considering the 90-day investment horizon Caterpillar is expected to generate 1.93 times less return on investment than Thermal Energy. But when comparing it to its historical volatility, Caterpillar is 3.19 times less risky than Thermal Energy. It trades about 0.08 of its potential returns per unit of risk. Thermal Energy International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 8.20 in Thermal Energy International on September 5, 2024 and sell it today you would earn a total of 5.80 from holding Thermal Energy International or generate 70.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Thermal Energy International
Performance |
| Timeline |
| Caterpillar |
| Thermal Energy Inter |
Caterpillar and Thermal Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Thermal Energy
The main advantage of trading using opposite Caterpillar and Thermal Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Thermal Energy 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 Thermal Energy will offset losses from the drop in Thermal Energy's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Deere Company | Caterpillar vs. Lindsay | Caterpillar vs. Lion Electric Corp |
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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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