Correlation Between Nasdaq and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Caterpillar, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Caterpillar.
Diversification Opportunities for Nasdaq and Caterpillar
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Nasdaq and Caterpillar is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and Caterpillar go up and down completely randomly.
Pair Corralation between Nasdaq and Caterpillar
Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.44 times more return on investment than Caterpillar. However, Nasdaq Inc is 2.25 times less risky than Caterpillar. It trades about 0.39 of its potential returns per unit of risk. Caterpillar is currently generating about 0.09 per unit of risk. If you would invest 7,534 in Nasdaq Inc on August 29, 2024 and sell it today you would earn a total of 731.00 from holding Nasdaq Inc or generate 9.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq Inc vs. Caterpillar
Performance |
| Timeline |
| Nasdaq Inc |
| Caterpillar |
Nasdaq and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and Caterpillar
The main advantage of trading using opposite Nasdaq and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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.The idea behind Nasdaq Inc and Caterpillar pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
Other Complementary Tools
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
| Commodity Directory Find actively traded commodities issued by global exchanges | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |