Correlation Between Caterpillar and 00751YAG1

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Can any of the company-specific risk be diversified away by investing in both Caterpillar and 00751YAG1 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 00751YAG1 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and AAP 35 15 MAR 32, you can compare the effects of market volatilities on Caterpillar and 00751YAG1 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 00751YAG1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 00751YAG1.

Diversification Opportunities for Caterpillar and 00751YAG1

-0.37
  Correlation Coefficient

Very good diversification

The 3 months correlation between Caterpillar and 00751YAG1 is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AAP 35 15 MAR 32 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAP 35 15 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 00751YAG1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAP 35 15 has no effect on the direction of Caterpillar i.e., Caterpillar and 00751YAG1 go up and down completely randomly.

Pair Corralation between Caterpillar and 00751YAG1

Considering the 90-day investment horizon Caterpillar is expected to generate 2.79 times more return on investment than 00751YAG1. However, Caterpillar is 2.79 times more volatile than AAP 35 15 MAR 32. It trades about 0.12 of its potential returns per unit of risk. AAP 35 15 MAR 32 is currently generating about 0.04 per unit of risk. If you would invest  24,676  in Caterpillar on August 26, 2024 and sell it today you would earn a total of  15,073  from holding Caterpillar or generate 61.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.18%
ValuesDaily Returns

Caterpillar  vs.  AAP 35 15 MAR 32

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.
AAP 35 15 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days AAP 35 15 MAR 32 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for AAP 35 15 MAR 32 investors.

Caterpillar and 00751YAG1 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and 00751YAG1

The main advantage of trading using opposite Caterpillar and 00751YAG1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 00751YAG1 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 00751YAG1 will offset losses from the drop in 00751YAG1's long position.
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The idea behind Caterpillar and AAP 35 15 MAR 32 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.

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