Correlation Between Caterpillar and FT Vest
Can any of the company-specific risk be diversified away by investing in both Caterpillar and FT Vest 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 FT Vest into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and FT Vest Equity, you can compare the effects of market volatilities on Caterpillar and FT Vest 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 FT Vest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and FT Vest.
Diversification Opportunities for Caterpillar and FT Vest
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and XMAY is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and FT Vest Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT Vest Equity 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 FT Vest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT Vest Equity has no effect on the direction of Caterpillar i.e., Caterpillar and FT Vest go up and down completely randomly.
Pair Corralation between Caterpillar and FT Vest
Considering the 90-day investment horizon Caterpillar is expected to generate 5.21 times more return on investment than FT Vest. However, Caterpillar is 5.21 times more volatile than FT Vest Equity. It trades about 0.12 of its potential returns per unit of risk. FT Vest Equity is currently generating about 0.14 per unit of risk. If you would invest 24,551 in Caterpillar on August 25, 2024 and sell it today you would earn a total of 15,198 from holding Caterpillar or generate 61.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 52.8% |
| Values | Daily Returns |
Caterpillar vs. FT Vest Equity
Performance |
| Timeline |
| Caterpillar |
| FT Vest Equity |
Caterpillar and FT Vest Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and FT Vest
The main advantage of trading using opposite Caterpillar and FT Vest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, FT Vest 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 FT Vest will offset losses from the drop in FT Vest's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| FT Vest vs. FT Vest Equity | FT Vest vs. Northern Lights | FT Vest vs. Dimensional International High | FT Vest vs. First Trust Exchange Traded |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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