Correlation Between Traton SE and Caterpillar

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

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

Diversification Opportunities for Traton SE and Caterpillar

0.02

Correlation Coefficient

Traton SE  Caterpillar

Significant diversification

The 3 months correlation between Traton and Caterpillar is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Traton SE and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Traton SE 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 Traton SE 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 Traton SE i.e., Traton SE and Caterpillar go up and down completely randomly.

Pair Corralation between Traton SE and Caterpillar

Assuming the 90 days trading horizon Traton SE is expected to generate 1.82 times more return on investment than Caterpillar. However, Traton SE is 1.82 times more volatile than Caterpillar. It trades about -0.07 of its potential returns per unit of risk. Caterpillar is currently generating about -0.26 per unit of risk. If you would invest  2,870  in Traton SE on September 23, 2024 and sell it today you would lose (110.00) from holding Traton SE or give up 3.83% of portfolio value over 90 days.

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

Traton SE  vs.  Caterpillar

Traton SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Traton SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Traton SE is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Caterpillar

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Traton SE and Caterpillar

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

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..