Correlation Between Archer Daniels and Caterpillar

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Can any of the company-specific risk be diversified away by investing in both Archer Daniels 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 Archer Daniels and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Archer Daniels Midland and Caterpillar, you can compare the effects of market volatilities on Archer Daniels 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 Archer Daniels with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archer Daniels and Caterpillar.

Diversification Opportunities for Archer Daniels and Caterpillar

-0.49
  Correlation Coefficient

Very good diversification

The 3 months correlation between Archer and Caterpillar is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Archer Daniels Midland and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Archer Daniels 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 Archer Daniels Midland 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 Archer Daniels i.e., Archer Daniels and Caterpillar go up and down completely randomly.

Pair Corralation between Archer Daniels and Caterpillar

Considering the 90-day investment horizon Archer Daniels Midland is expected to generate 0.95 times more return on investment than Caterpillar. However, Archer Daniels Midland is 1.06 times less risky than Caterpillar. It trades about -0.04 of its potential returns per unit of risk. Caterpillar is currently generating about -0.05 per unit of risk. If you would invest  5,222  in Archer Daniels Midland on September 17, 2024 and sell it today you would lose (53.00) from holding Archer Daniels Midland or give up 1.01% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Archer Daniels Midland  vs.  Caterpillar

 Performance 
       Timeline  
Archer Daniels Midland 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Archer Daniels Midland has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Caterpillar 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Archer Daniels and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Archer Daniels and Caterpillar

The main advantage of trading using opposite Archer Daniels and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Archer Daniels 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 Archer Daniels Midland 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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