Correlation Between Caterpillar and 09660V2A0

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Can any of the company-specific risk be diversified away by investing in both Caterpillar and 09660V2A0 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 09660V2A0 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and BNP 4375 01 MAR 33, you can compare the effects of market volatilities on Caterpillar and 09660V2A0 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 09660V2A0. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 09660V2A0.

Diversification Opportunities for Caterpillar and 09660V2A0

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Caterpillar and 09660V2A0 is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and BNP 4375 01 MAR 33 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNP 4375 01 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 09660V2A0. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNP 4375 01 has no effect on the direction of Caterpillar i.e., Caterpillar and 09660V2A0 go up and down completely randomly.

Pair Corralation between Caterpillar and 09660V2A0

Considering the 90-day investment horizon Caterpillar is expected to generate 1.74 times more return on investment than 09660V2A0. However, Caterpillar is 1.74 times more volatile than BNP 4375 01 MAR 33. It trades about 0.08 of its potential returns per unit of risk. BNP 4375 01 MAR 33 is currently generating about 0.05 per unit of risk. If you would invest  21,921  in Caterpillar on August 30, 2024 and sell it today you would earn a total of  18,449  from holding Caterpillar or generate 84.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy36.97%
ValuesDaily Returns

Caterpillar  vs.  BNP 4375 01 MAR 33

 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 unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.
BNP 4375 01 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in BNP 4375 01 MAR 33 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 09660V2A0 is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Caterpillar and 09660V2A0 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and 09660V2A0

The main advantage of trading using opposite Caterpillar and 09660V2A0 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 09660V2A0 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 09660V2A0 will offset losses from the drop in 09660V2A0's long position.
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The idea behind Caterpillar and BNP 4375 01 MAR 33 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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