Correlation Between Caterpillar and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Wells Fargo 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 Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Wells Fargo Large, you can compare the effects of market volatilities on Caterpillar and Wells Fargo 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 Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Wells Fargo.
Diversification Opportunities for Caterpillar and Wells Fargo
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Caterpillar and Wells is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Wells Fargo Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Large 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo Large has no effect on the direction of Caterpillar i.e., Caterpillar and Wells Fargo go up and down completely randomly.
Pair Corralation between Caterpillar and Wells Fargo
Considering the 90-day investment horizon Caterpillar is expected to under-perform the Wells Fargo. In addition to that, Caterpillar is 2.02 times more volatile than Wells Fargo Large. It trades about -0.41 of its total potential returns per unit of risk. Wells Fargo Large is currently generating about -0.24 per unit of volatility. If you would invest 1,920 in Wells Fargo Large on November 29, 2024 and sell it today you would lose (71.00) from holding Wells Fargo Large or give up 3.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Wells Fargo Large
Performance |
| Timeline |
| Caterpillar |
| Wells Fargo Large |
Caterpillar and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Wells Fargo
The main advantage of trading using opposite Caterpillar and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Wells Fargo 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 Wells Fargo will offset losses from the drop in Wells Fargo's long position.| Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
| Wells Fargo vs. Wells Fargo Large | Wells Fargo vs. Wells Fargo Large | Wells Fargo vs. Janus Growth And | Wells Fargo vs. Praxis Growth Index |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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