Correlation Between National Retail and Caterpillar
Can any of the company-specific risk be diversified away by investing in both National Retail and Caterpillar 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 National Retail and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Retail Properties and Caterpillar, you can compare the effects of market volatilities on National Retail and Caterpillar 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 National Retail with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and Caterpillar.
Diversification Opportunities for National Retail and Caterpillar
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between National and Caterpillar is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and National Retail 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 National Retail Properties are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of National Retail i.e., National Retail and Caterpillar go up and down completely randomly.
Pair Corralation between National Retail and Caterpillar
Assuming the 90 days trading horizon National Retail Properties is expected to generate 1.25 times more return on investment than Caterpillar. However, National Retail is 1.25 times more volatile than Caterpillar. It trades about 0.21 of its potential returns per unit of risk. Caterpillar is currently generating about -0.28 per unit of risk. If you would invest 3,805 in National Retail Properties on December 4, 2024 and sell it today you would earn a total of 269.00 from holding National Retail Properties or generate 7.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Retail Properties vs. Caterpillar
Performance |
| Timeline |
| National Retail Prop |
| Caterpillar |
National Retail and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Retail and Caterpillar
The main advantage of trading using opposite National Retail and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Retail position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.| National Retail vs. PennantPark Investment | National Retail vs. Japan Asia Investment | National Retail vs. Yunnan Water Investment | National Retail vs. PennyMac Mortgage Investment |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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