Correlation Between Caterpillar and VOLVO B
Can any of the company-specific risk be diversified away by investing in both Caterpillar and VOLVO B 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 VOLVO B into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and VOLVO B UNSPADR, you can compare the effects of market volatilities on Caterpillar and VOLVO B 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 VOLVO B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and VOLVO B.
Diversification Opportunities for Caterpillar and VOLVO B
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and VOLVO is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and VOLVO B UNSPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLVO B UNSPADR 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 VOLVO B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLVO B UNSPADR has no effect on the direction of Caterpillar i.e., Caterpillar and VOLVO B go up and down completely randomly.
Pair Corralation between Caterpillar and VOLVO B
Assuming the 90 days trading horizon Caterpillar is expected to generate 1.5 times more return on investment than VOLVO B. However, Caterpillar is 1.5 times more volatile than VOLVO B UNSPADR. It trades about 0.18 of its potential returns per unit of risk. VOLVO B UNSPADR is currently generating about -0.03 per unit of risk. If you would invest 34,850 in Caterpillar on September 3, 2024 and sell it today you would earn a total of 3,750 from holding Caterpillar or generate 10.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. VOLVO B UNSPADR
Performance |
| Timeline |
| Caterpillar |
| VOLVO B UNSPADR |
Caterpillar and VOLVO B Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and VOLVO B
The main advantage of trading using opposite Caterpillar and VOLVO B positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, VOLVO B 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 VOLVO B will offset losses from the drop in VOLVO B's long position.| Caterpillar vs. VOLVO B UNSPADR | Caterpillar vs. KOMATSU LTD SPONS | Caterpillar vs. Superior Plus Corp | Caterpillar vs. NMI Holdings |
| VOLVO B vs. United Breweries Co | VOLVO B vs. Fevertree Drinks PLC | VOLVO B vs. IMPERIAL TOBACCO | VOLVO B vs. Molson Coors Beverage |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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