Correlation Between Caterpillar and IShares MSCI
Can any of the company-specific risk be diversified away by investing in both Caterpillar and IShares MSCI 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 IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and iShares MSCI World, you can compare the effects of market volatilities on Caterpillar and IShares MSCI 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 IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and IShares MSCI.
Diversification Opportunities for Caterpillar and IShares MSCI
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Caterpillar and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI World 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI World has no effect on the direction of Caterpillar i.e., Caterpillar and IShares MSCI go up and down completely randomly.
Pair Corralation between Caterpillar and IShares MSCI
Considering the 90-day investment horizon Caterpillar is expected to generate 2.17 times more return on investment than IShares MSCI. However, Caterpillar is 2.17 times more volatile than iShares MSCI World. It trades about 0.07 of its potential returns per unit of risk. iShares MSCI World is currently generating about 0.09 per unit of risk. If you would invest 22,774 in Caterpillar on August 23, 2024 and sell it today you would earn a total of 16,185 from holding Caterpillar or generate 71.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. iShares MSCI World
Performance |
| Timeline |
| Caterpillar |
| iShares MSCI World |
Caterpillar and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and IShares MSCI
The main advantage of trading using opposite Caterpillar and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, IShares MSCI 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 IShares MSCI will offset losses from the drop in IShares MSCI's long position.| Caterpillar vs. Small Cap Core | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Mutual Of America | Caterpillar vs. Ep Emerging Markets |
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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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