Correlation Between Astec Industries and Caterpillar

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

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

Diversification Opportunities for Astec Industries and Caterpillar

0.45

Correlation Coefficient

Astec Industries  Caterpillar

Very weak diversification

The 3 months correlation between Astec and Caterpillar is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Astec Industries and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Astec Industries 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 Astec Industries 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 Astec Industries i.e., Astec Industries and Caterpillar go up and down completely randomly.

Pair Corralation between Astec Industries and Caterpillar

Given the investment horizon of 90 days Astec Industries is expected to generate 1.3 times more return on investment than Caterpillar. However, Astec Industries is 1.3 times more volatile than Caterpillar. It trades about 0.11 of its potential returns per unit of risk. Caterpillar is currently generating about 0.09 per unit of risk. If you would invest  3,166  in Astec Industries on September 16, 2024 and sell it today you would earn a total of  544.00  from holding Astec Industries or generate 17.18% return on investment over 90 days.

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

Astec Industries  vs.  Caterpillar

Astec Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Astec Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Astec Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Astec Industries and Caterpillar

The main advantage of trading using opposite Astec Industries and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Astec Industries 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 Astec Industries 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.