Correlation Between Caterpillar and AB International

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

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

Diversification Opportunities for Caterpillar and AB International

0.21

Correlation Coefficient

Caterpillar  AB International

Modest diversification

The 3 months correlation between Caterpillar and ABQQ is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AB International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB International and Caterpillar 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 Caterpillar are associated (or correlated) with AB International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB International has no effect on the direction of Caterpillar i.e., Caterpillar and AB International go up and down completely randomly.

Pair Corralation between Caterpillar and AB International

Considering the 90-day investment horizon Caterpillar is expected to generate 14.45 times less return on investment than AB International. But when comparing it to its historical volatility, Caterpillar is 10.26 times less risky than AB International. It trades about 0.09 of its potential returns per unit of risk. AB International Group is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.06  in AB International Group on September 14, 2024 and sell it today you would earn a total of  0.03  from holding AB International Group or generate 50.0% return on investment over 90 days.

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

Caterpillar  vs.  AB International Group

Caterpillar

Risk-Adjusted Performance

6 of 100

OK

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.

AB International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB International Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, AB International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and AB International

The main advantage of trading using opposite Caterpillar and AB International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, AB International 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 AB International will offset losses from the drop in AB International's long position.

The idea behind Caterpillar and AB International Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.