Correlation Between International Business and Caterpillar
Can any of the company-specific risk be diversified away by investing in both International Business 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 International Business and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Business Machines and Caterpillar, you can compare the effects of market volatilities on International Business 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 International Business with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and Caterpillar.
Diversification Opportunities for International Business and Caterpillar
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Caterpillar is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and International Business 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 International Business Machines 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 International Business i.e., International Business and Caterpillar go up and down completely randomly.
Pair Corralation between International Business and Caterpillar
Considering the 90-day investment horizon International Business Machines is expected to generate 0.55 times more return on investment than Caterpillar. However, International Business Machines is 1.81 times less risky than Caterpillar. It trades about 0.35 of its potential returns per unit of risk. Caterpillar is currently generating about 0.15 per unit of risk. If you would invest 20,662 in International Business Machines on September 2, 2024 and sell it today you would earn a total of 2,079 from holding International Business Machines or generate 10.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Business Machine vs. Caterpillar
Performance |
| Timeline |
| International Business |
| Caterpillar |
International Business and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Business and Caterpillar
The main advantage of trading using opposite International Business and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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.| International Business vs. EPAM Systems | International Business vs. Infosys Ltd ADR | International Business vs. Cognizant Technology Solutions | International Business vs. FiscalNote Holdings |
| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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