Correlation Between Caterpillar and UNITED

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

Diversification Opportunities for Caterpillar and UNITED

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between Caterpillar and UNITED is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and UNITED STS STL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED STS STL 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 UNITED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED STS STL has no effect on the direction of Caterpillar i.e., Caterpillar and UNITED go up and down completely randomly.

Pair Corralation between Caterpillar and UNITED

Considering the 90-day investment horizon Caterpillar is expected to generate 1.49 times more return on investment than UNITED. However, Caterpillar is 1.49 times more volatile than UNITED STS STL. It trades about 0.1 of its potential returns per unit of risk. UNITED STS STL is currently generating about 0.04 per unit of risk. If you would invest  32,694  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  7,557  from holding Caterpillar or generate 23.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.2%
ValuesDaily Returns

Caterpillar  vs.  UNITED STS STL

 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 fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.
UNITED STS STL 

Risk-Adjusted Performance

2 of 100

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

Caterpillar and UNITED Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and UNITED

The main advantage of trading using opposite Caterpillar and UNITED positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, UNITED 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 UNITED will offset losses from the drop in UNITED's long position.
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The idea behind Caterpillar and UNITED STS STL 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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