Correlation Between NVIDIA and Caterpillar
Can any of the company-specific risk be diversified away by investing in both NVIDIA 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 NVIDIA and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVIDIA and Caterpillar, you can compare the effects of market volatilities on NVIDIA 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 NVIDIA with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and Caterpillar.
Diversification Opportunities for NVIDIA and Caterpillar
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NVIDIA and Caterpillar is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and Caterpillar go up and down completely randomly.
Pair Corralation between NVIDIA and Caterpillar
Given the investment horizon of 90 days NVIDIA is expected to generate 1.3 times more return on investment than Caterpillar. However, NVIDIA is 1.3 times more volatile than Caterpillar. It trades about 0.0 of its potential returns per unit of risk. Caterpillar is currently generating about -0.02 per unit of risk. If you would invest 13,806 in NVIDIA on September 13, 2024 and sell it today you would lose (140.00) from holding NVIDIA or give up 1.01% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NVIDIA vs. Caterpillar
Performance |
| Timeline |
| NVIDIA |
| Caterpillar |
NVIDIA and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NVIDIA and Caterpillar
The main advantage of trading using opposite NVIDIA and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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.| NVIDIA vs. Intel | NVIDIA vs. Taiwan Semiconductor Manufacturing | NVIDIA vs. Marvell Technology Group | NVIDIA vs. Micron Technology |
| Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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