Correlation Between Home Depot and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Home Depot 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 Home Depot and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Caterpillar, you can compare the effects of market volatilities on Home Depot 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 Home Depot with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Caterpillar.
Diversification Opportunities for Home Depot and Caterpillar
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Home and Caterpillar is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Home Depot 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 Home Depot 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 Home Depot i.e., Home Depot and Caterpillar go up and down completely randomly.
Pair Corralation between Home Depot and Caterpillar
Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.02 times more return on investment than Caterpillar. However, Home Depot is 1.02 times more volatile than Caterpillar. It trades about 0.15 of its potential returns per unit of risk. Caterpillar is currently generating about -0.07 per unit of risk. If you would invest 40,615 in Home Depot on September 12, 2024 and sell it today you would earn a total of 1,644 from holding Home Depot or generate 4.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Home Depot vs. Caterpillar
Performance |
| Timeline |
| Home Depot |
| Caterpillar |
Home Depot and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Depot and Caterpillar
The main advantage of trading using opposite Home Depot and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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.| Home Depot vs. Victory Integrity Smallmid Cap | Home Depot vs. Hilton Worldwide Holdings | Home Depot vs. NVIDIA | Home Depot vs. JPMorgan Chase Co |
| Caterpillar vs. Victory Integrity Smallmid Cap | Caterpillar vs. Hilton Worldwide Holdings | Caterpillar vs. NVIDIA | Caterpillar vs. JPMorgan Chase Co |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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