Correlation Between Caterpillar and Aldebaran Resources

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

By analyzing existing cross correlation between Caterpillar and Aldebaran Resources, you can compare the effects of market volatilities on Caterpillar and Aldebaran Resources 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 Aldebaran Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Aldebaran Resources.

Diversification Opportunities for Caterpillar and Aldebaran Resources

0.64

Correlation Coefficient

Caterpillar  Aldebaran Resources

Poor diversification

The 3 months correlation between Caterpillar and Aldebaran is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Aldebaran Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aldebaran Resources 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 Aldebaran Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aldebaran Resources has no effect on the direction of Caterpillar i.e., Caterpillar and Aldebaran Resources go up and down completely randomly.

Pair Corralation between Caterpillar and Aldebaran Resources

Considering the 90-day investment horizon Caterpillar is expected to generate 4.72 times less return on investment than Aldebaran Resources. But when comparing it to its historical volatility, Caterpillar is 2.45 times less risky than Aldebaran Resources. It trades about 0.16 of its potential returns per unit of risk. Aldebaran Resources is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  65.00  in Aldebaran Resources on September 4, 2024 and sell it today you would earn a total of  88.00  from holding Aldebaran Resources or generate 135.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Caterpillar  vs.  Aldebaran Resources

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aldebaran Resources

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aldebaran Resources are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aldebaran Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Aldebaran Resources

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

The idea behind Caterpillar and Aldebaran Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.