Correlation Between Caterpillar and CITIGROUP

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

Diversification Opportunities for Caterpillar and CITIGROUP

-0.61
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Caterpillar and CITIGROUP is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and CITIGROUP INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIGROUP INC 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 CITIGROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIGROUP INC has no effect on the direction of Caterpillar i.e., Caterpillar and CITIGROUP go up and down completely randomly.

Pair Corralation between Caterpillar and CITIGROUP

Considering the 90-day investment horizon Caterpillar is expected to generate 2.4 times more return on investment than CITIGROUP. However, Caterpillar is 2.4 times more volatile than CITIGROUP INC. It trades about 0.1 of its potential returns per unit of risk. CITIGROUP INC is currently generating about 0.01 per unit of risk. If you would invest  22,899  in Caterpillar on September 1, 2024 and sell it today you would earn a total of  17,712  from holding Caterpillar or generate 77.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy99.73%
ValuesDaily Returns

Caterpillar  vs.  CITIGROUP INC

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) 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.
CITIGROUP INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days CITIGROUP INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CITIGROUP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Caterpillar and CITIGROUP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and CITIGROUP

The main advantage of trading using opposite Caterpillar and CITIGROUP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, CITIGROUP 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 CITIGROUP will offset losses from the drop in CITIGROUP's long position.
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The idea behind Caterpillar and CITIGROUP INC 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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