Correlation Between Caterpillar and Manager Directed
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Manager Directed 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 Manager Directed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Manager Directed Portfolios, you can compare the effects of market volatilities on Caterpillar and Manager Directed 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 Manager Directed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Manager Directed.
Diversification Opportunities for Caterpillar and Manager Directed
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Manager is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Manager Directed Portfolios in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manager Directed Por 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 Manager Directed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manager Directed Por has no effect on the direction of Caterpillar i.e., Caterpillar and Manager Directed go up and down completely randomly.
Pair Corralation between Caterpillar and Manager Directed
Considering the 90-day investment horizon Caterpillar is expected to generate 44.6 times more return on investment than Manager Directed. However, Caterpillar is 44.6 times more volatile than Manager Directed Portfolios. It trades about 0.08 of its potential returns per unit of risk. Manager Directed Portfolios is currently generating about 0.4 per unit of risk. If you would invest 22,614 in Caterpillar on September 4, 2024 and sell it today you would earn a total of 17,637 from holding Caterpillar or generate 77.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 14.95% |
| Values | Daily Returns |
Caterpillar vs. Manager Directed Portfolios
Performance |
| Timeline |
| Caterpillar |
| Manager Directed Por |
Caterpillar and Manager Directed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Manager Directed
The main advantage of trading using opposite Caterpillar and Manager Directed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Manager Directed 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 Manager Directed will offset losses from the drop in Manager Directed'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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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