Correlation Between Caterpillar and Tarku Resources
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Tarku Resources 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 Tarku Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Tarku Resources, you can compare the effects of market volatilities on Caterpillar and Tarku Resources 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 Tarku Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Tarku Resources.
Diversification Opportunities for Caterpillar and Tarku Resources
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and Tarku is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Tarku Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarku Resources 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 Tarku Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarku Resources has no effect on the direction of Caterpillar i.e., Caterpillar and Tarku Resources go up and down completely randomly.
Pair Corralation between Caterpillar and Tarku Resources
Considering the 90-day investment horizon Caterpillar is expected to generate 2.18 times less return on investment than Tarku Resources. But when comparing it to its historical volatility, Caterpillar is 9.7 times less risky than Tarku Resources. It trades about 0.17 of its potential returns per unit of risk. Tarku Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 0.74 in Tarku Resources on September 3, 2024 and sell it today you would lose (0.20) from holding Tarku Resources or give up 27.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Caterpillar vs. Tarku Resources
Performance |
| Timeline |
| Caterpillar |
| Tarku Resources |
Caterpillar and Tarku Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Tarku Resources
The main advantage of trading using opposite Caterpillar and Tarku Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Tarku Resources 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 Tarku Resources will offset losses from the drop in Tarku Resources' long position.| Caterpillar vs. Partner Communications | Caterpillar vs. Merck Company | Caterpillar vs. Western Midstream Partners | Caterpillar vs. Edgewise Therapeutics |
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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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