Correlation Between Caterpillar and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Caterpillar and SPDR SP 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 SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and SPDR SP Retail, you can compare the effects of market volatilities on Caterpillar and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and SPDR SP.
Diversification Opportunities for Caterpillar and SPDR SP
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and SPDR is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and SPDR SP Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Retail 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Retail has no effect on the direction of Caterpillar i.e., Caterpillar and SPDR SP go up and down completely randomly.
Pair Corralation between Caterpillar and SPDR SP
Considering the 90-day investment horizon Caterpillar is expected to generate 2.58 times less return on investment than SPDR SP. In addition to that, Caterpillar is 2.23 times more volatile than SPDR SP Retail. It trades about 0.05 of its total potential returns per unit of risk. SPDR SP Retail is currently generating about 0.26 per unit of volatility. If you would invest 7,644 in SPDR SP Retail on August 27, 2024 and sell it today you would earn a total of 461.00 from holding SPDR SP Retail or generate 6.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. SPDR SP Retail
Performance |
| Timeline |
| Caterpillar |
| SPDR SP Retail |
Caterpillar and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and SPDR SP
The main advantage of trading using opposite Caterpillar and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar vs. AGCO Corporation |
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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