Correlation Between Caterpillar and Universal Music
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Universal Music 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 Universal Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Universal Music Group, you can compare the effects of market volatilities on Caterpillar and Universal Music 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 Universal Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Universal Music.
Diversification Opportunities for Caterpillar and Universal Music
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Universal is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group 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 Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Caterpillar i.e., Caterpillar and Universal Music go up and down completely randomly.
Pair Corralation between Caterpillar and Universal Music
Considering the 90-day investment horizon Caterpillar is expected to generate 0.89 times more return on investment than Universal Music. However, Caterpillar is 1.12 times less risky than Universal Music. It trades about 0.05 of its potential returns per unit of risk. Universal Music Group is currently generating about 0.0 per unit of risk. If you would invest 31,722 in Caterpillar on November 4, 2024 and sell it today you would earn a total of 5,422 from holding Caterpillar or generate 17.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Universal Music Group
Performance |
| Timeline |
| Caterpillar |
| Universal Music Group |
Caterpillar and Universal Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Universal Music
The main advantage of trading using opposite Caterpillar and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Universal Music 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 Universal Music will offset losses from the drop in Universal Music's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Universal Music vs. New Wave Holdings | Universal Music vs. Guild Esports Plc | Universal Music vs. Celtic plc | Universal Music vs. OverActive Media Corp |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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