Correlation Between Caterpillar and AB Volvo
Can any of the company-specific risk be diversified away by investing in both Caterpillar and AB Volvo 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 AB Volvo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and AB Volvo, you can compare the effects of market volatilities on Caterpillar and AB Volvo 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 AB Volvo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and AB Volvo.
Diversification Opportunities for Caterpillar and AB Volvo
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and VOL1 is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo 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 AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of Caterpillar i.e., Caterpillar and AB Volvo go up and down completely randomly.
Pair Corralation between Caterpillar and AB Volvo
Assuming the 90 days trading horizon Caterpillar is expected to generate 3.26 times less return on investment than AB Volvo. In addition to that, Caterpillar is 1.13 times more volatile than AB Volvo. It trades about 0.02 of its total potential returns per unit of risk. AB Volvo is currently generating about 0.08 per unit of volatility. If you would invest 2,424 in AB Volvo on September 13, 2024 and sell it today you would earn a total of 59.00 from holding AB Volvo or generate 2.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. AB Volvo
Performance |
| Timeline |
| Caterpillar |
| AB Volvo |
Caterpillar and AB Volvo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and AB Volvo
The main advantage of trading using opposite Caterpillar and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, AB Volvo 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 AB Volvo will offset losses from the drop in AB Volvo's long position.| Caterpillar vs. Perseus Mining Limited | Caterpillar vs. Axcelis Technologies | Caterpillar vs. National Retail Properties | Caterpillar vs. ADRIATIC METALS LS 013355 |
| AB Volvo vs. Daimler Truck Holding | AB Volvo vs. Superior Plus Corp | AB Volvo vs. SIVERS SEMICONDUCTORS AB | AB Volvo vs. NorAm Drilling AS |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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