Correlation Between Caterpillar and Western Copper
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Western Copper 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 Western Copper into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Western Copper and, you can compare the effects of market volatilities on Caterpillar and Western Copper 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 Western Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Western Copper.
Diversification Opportunities for Caterpillar and Western Copper
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Caterpillar and Western is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Western Copper and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Copper 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 Western Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Copper has no effect on the direction of Caterpillar i.e., Caterpillar and Western Copper go up and down completely randomly.
Pair Corralation between Caterpillar and Western Copper
Considering the 90-day investment horizon Caterpillar is expected to generate 0.58 times more return on investment than Western Copper. However, Caterpillar is 1.73 times less risky than Western Copper. It trades about 0.07 of its potential returns per unit of risk. Western Copper and is currently generating about -0.02 per unit of risk. If you would invest 32,979 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 7,632 from holding Caterpillar or generate 23.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Western Copper and
Performance |
| Timeline |
| Caterpillar |
| Western Copper |
Caterpillar and Western Copper Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Western Copper
The main advantage of trading using opposite Caterpillar and Western Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Western Copper 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 Western Copper will offset losses from the drop in Western Copper's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Western Copper vs. NioCorp Developments Ltd | Western Copper vs. Teck Resources Ltd | Western Copper vs. Sigma Lithium Resources | Western Copper vs. MP Materials Corp |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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