Correlation Between Caterpillar and Vanguard Primecap
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Vanguard Primecap 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 Vanguard Primecap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Vanguard Primecap Fund, you can compare the effects of market volatilities on Caterpillar and Vanguard Primecap 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 Vanguard Primecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Vanguard Primecap.
Diversification Opportunities for Caterpillar and Vanguard Primecap
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Vanguard is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Vanguard Primecap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Primecap 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 Vanguard Primecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Primecap has no effect on the direction of Caterpillar i.e., Caterpillar and Vanguard Primecap go up and down completely randomly.
Pair Corralation between Caterpillar and Vanguard Primecap
Considering the 90-day investment horizon Caterpillar is expected to generate 1.76 times more return on investment than Vanguard Primecap. However, Caterpillar is 1.76 times more volatile than Vanguard Primecap Fund. It trades about 0.07 of its potential returns per unit of risk. Vanguard Primecap Fund is currently generating about 0.04 per unit of risk. If you would invest 34,383 in Caterpillar on August 24, 2024 and sell it today you would earn a total of 4,576 from holding Caterpillar or generate 13.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Vanguard Primecap Fund
Performance |
| Timeline |
| Caterpillar |
| Vanguard Primecap |
Caterpillar and Vanguard Primecap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Vanguard Primecap
The main advantage of trading using opposite Caterpillar and Vanguard Primecap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Vanguard Primecap 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 Vanguard Primecap will offset losses from the drop in Vanguard Primecap's long position.| Caterpillar vs. Small Cap Core | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Mutual Of America | Caterpillar vs. Ep Emerging Markets |
| Vanguard Primecap vs. Vanguard Windsor Ii | Vanguard Primecap vs. Vanguard Capital Opportunity | Vanguard Primecap vs. Vanguard International Growth | Vanguard Primecap vs. Vanguard Explorer Fund |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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