Correlation Between Caterpillar and Ag Growth

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

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

Diversification Opportunities for Caterpillar and Ag Growth

0.48

Correlation Coefficient

Caterpillar  Ag Growth

Very weak diversification

The 3 months correlation between Caterpillar and AGGZF is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Ag Growth International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ag Growth 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 Ag Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ag Growth International has no effect on the direction of Caterpillar i.e., Caterpillar and Ag Growth go up and down completely randomly.

Pair Corralation between Caterpillar and Ag Growth

Considering the 90-day investment horizon Caterpillar is expected to generate 0.35 times more return on investment than Ag Growth. However, Caterpillar is 2.86 times less risky than Ag Growth. It trades about -0.4 of its potential returns per unit of risk. Ag Growth International is currently generating about -0.16 per unit of risk. If you would invest  37,498  in Caterpillar on December 1, 2024 and sell it today you would lose (3,498) from holding Caterpillar or give up 9.33% of portfolio value over 90 days.

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

Caterpillar  vs.  Ag Growth International

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ag Growth International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ag Growth International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Caterpillar and Ag Growth

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

The idea behind Caterpillar and Ag Growth International 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.