Correlation Between Nippon Steel and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Nippon Steel 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 Nippon Steel and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nippon Steel and Caterpillar, you can compare the effects of market volatilities on Nippon Steel 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 Nippon Steel with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Steel and Caterpillar.
Diversification Opportunities for Nippon Steel and Caterpillar
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Nippon and Caterpillar is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Nippon Steel 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 Nippon Steel 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 Nippon Steel i.e., Nippon Steel and Caterpillar go up and down completely randomly.
Pair Corralation between Nippon Steel and Caterpillar
Assuming the 90 days trading horizon Nippon Steel is expected to generate 36.18 times less return on investment than Caterpillar. But when comparing it to its historical volatility, Nippon Steel is 1.08 times less risky than Caterpillar. It trades about 0.0 of its potential returns per unit of risk. Caterpillar is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 30,101 in Caterpillar on October 7, 2024 and sell it today you would earn a total of 4,999 from holding Caterpillar or generate 16.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nippon Steel vs. Caterpillar
Performance |
| Timeline |
| Nippon Steel |
| Caterpillar |
Nippon Steel and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nippon Steel and Caterpillar
The main advantage of trading using opposite Nippon Steel and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel 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.| Nippon Steel vs. Apple Inc | Nippon Steel vs. Apple Inc | Nippon Steel vs. Apple Inc | Nippon Steel vs. Apple Inc |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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