Correlation Between Citic Telecom and Caterpillar

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

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

Diversification Opportunities for Citic Telecom and Caterpillar

0.77

Correlation Coefficient

Citic Telecom  Caterpillar

Poor diversification

The 3 months correlation between Citic and Caterpillar is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Citic Telecom International and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Citic Telecom 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 Citic Telecom International 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 Citic Telecom i.e., Citic Telecom and Caterpillar go up and down completely randomly.

Pair Corralation between Citic Telecom and Caterpillar

Assuming the 90 days trading horizon Citic Telecom International is expected to generate 2.42 times more return on investment than Caterpillar. However, Citic Telecom is 2.42 times more volatile than Caterpillar. It trades about 0.14 of its potential returns per unit of risk. Caterpillar is currently generating about 0.2 per unit of risk. If you would invest  19.00  in Citic Telecom International on September 5, 2024 and sell it today you would earn a total of  8.00  from holding Citic Telecom International or generate 42.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Citic Telecom International  vs.  Caterpillar

Citic Telecom Intern

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Telecom International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Citic Telecom unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Citic Telecom and Caterpillar

The main advantage of trading using opposite Citic Telecom and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citic Telecom 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 Citic Telecom International 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.