Correlation Between Caterpillar and Xos
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Xos 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 Xos into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Xos Inc, you can compare the effects of market volatilities on Caterpillar and Xos 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 Xos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Xos.
Diversification Opportunities for Caterpillar and Xos
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Caterpillar and Xos is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Xos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xos Inc 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 Xos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xos Inc has no effect on the direction of Caterpillar i.e., Caterpillar and Xos go up and down completely randomly.
Pair Corralation between Caterpillar and Xos
Considering the 90-day investment horizon Caterpillar is expected to generate 0.27 times more return on investment than Xos. However, Caterpillar is 3.73 times less risky than Xos. It trades about 0.1 of its potential returns per unit of risk. Xos Inc is currently generating about -0.02 per unit of risk. If you would invest 20,956 in Caterpillar on August 27, 2024 and sell it today you would earn a total of 18,793 from holding Caterpillar or generate 89.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Xos Inc
Performance |
| Timeline |
| Caterpillar |
| Xos Inc |
Caterpillar and Xos Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Xos
The main advantage of trading using opposite Caterpillar and Xos positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Xos 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 Xos will offset losses from the drop in Xos' long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
| Xos vs. Lion Electric Corp | Xos vs. Nikola Corp | Xos vs. Wabash National | Xos vs. Hydrofarm Holdings Group |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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