Correlation Between Caterpillar and Ab Global

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

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

Diversification Opportunities for Caterpillar and Ab Global

0.8

Correlation Coefficient

Caterpillar  Ab Global

Very poor diversification

The 3 months correlation between Caterpillar and ARSYX is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Ab Global Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Global Real 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 Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Global Real has no effect on the direction of Caterpillar i.e., Caterpillar and Ab Global go up and down completely randomly.

Pair Corralation between Caterpillar and Ab Global

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Ab Global. In addition to that, Caterpillar is 1.92 times more volatile than Ab Global Real. It trades about -0.08 of its total potential returns per unit of risk. Ab Global Real is currently generating about -0.13 per unit of volatility. If you would invest  1,532  in Ab Global Real on October 6, 2024 and sell it today you would lose (112.00) from holding Ab Global Real or give up 7.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Caterpillar  vs.  Ab Global Real

Caterpillar

Risk-Adjusted Performance

0 of 100

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Ab Global Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Global Real has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Caterpillar and Ab Global

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

The idea behind Caterpillar and Ab Global Real 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.