Correlation Between Caterpillar and Unit
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Unit 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 Unit into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Unit Corporation, you can compare the effects of market volatilities on Caterpillar and Unit 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 Unit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Unit.
Diversification Opportunities for Caterpillar and Unit
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Unit is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Unit Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unit 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 Unit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unit has no effect on the direction of Caterpillar i.e., Caterpillar and Unit go up and down completely randomly.
Pair Corralation between Caterpillar and Unit
Considering the 90-day investment horizon Caterpillar is expected to generate 24.62 times less return on investment than Unit. But when comparing it to its historical volatility, Caterpillar is 8.04 times less risky than Unit. It trades about 0.08 of its potential returns per unit of risk. Unit Corporation is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 30.00 in Unit Corporation on August 28, 2024 and sell it today you would earn a total of 20.00 from holding Unit Corporation or generate 66.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 66.67% |
| Values | Daily Returns |
Caterpillar vs. Unit Corp.
Performance |
| Timeline |
| Caterpillar |
| Unit |
Caterpillar and Unit Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Unit
The main advantage of trading using opposite Caterpillar and Unit positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Unit 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 Unit will offset losses from the drop in Unit's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| Unit vs. Equinor ASA ADR | Unit vs. TotalEnergies SE ADR | Unit vs. Ecopetrol SA ADR | Unit vs. National Fuel Gas |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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