Correlation Between National Storage and Caterpillar

Can any of the company-specific risk be diversified away by investing in both National Storage 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 National Storage and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Storage Affiliates and Caterpillar, you can compare the effects of market volatilities on National Storage 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 National Storage with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Storage and Caterpillar.

Diversification Opportunities for National Storage and Caterpillar

-0.21

Correlation Coefficient

National Storage  Caterpillar

Very good diversification

The 3 months correlation between National and Caterpillar is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding National Storage Affiliates and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and National Storage 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 National Storage Affiliates 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 National Storage i.e., National Storage and Caterpillar go up and down completely randomly.

Pair Corralation between National Storage and Caterpillar

Assuming the 90 days horizon National Storage is expected to generate 3.06 times less return on investment than Caterpillar. But when comparing it to its historical volatility, National Storage Affiliates is 1.14 times less risky than Caterpillar. It trades about 0.03 of its potential returns per unit of risk. Caterpillar is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  35,810  in Caterpillar on September 4, 2024 and sell it today you would earn a total of  2,690  from holding Caterpillar or generate 7.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

National Storage Affiliates  vs.  Caterpillar

National Storage Aff

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Storage Affiliates are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, National Storage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Caterpillar

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Caterpillar exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Storage and Caterpillar

The main advantage of trading using opposite National Storage and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Storage 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 National Storage Affiliates 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.