Correlation Between Caterpillar and Arga Value

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

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

Diversification Opportunities for Caterpillar and Arga Value

0.92

Correlation Coefficient

Caterpillar  Arga Value

Almost no diversification

The 3 months correlation between Caterpillar and Arga is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Arga Value Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arga Value Institutional 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 Arga Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arga Value Institutional has no effect on the direction of Caterpillar i.e., Caterpillar and Arga Value go up and down completely randomly.

Pair Corralation between Caterpillar and Arga Value

Considering the 90-day investment horizon Caterpillar is expected to generate 1.6 times more return on investment than Arga Value. However, Caterpillar is 1.6 times more volatile than Arga Value Institutional. It trades about 0.07 of its potential returns per unit of risk. Arga Value Institutional is currently generating about 0.04 per unit of risk. If you would invest  24,063  in Caterpillar on October 23, 2024 and sell it today you would earn a total of  15,584  from holding Caterpillar or generate 64.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	70.1%
Values	Daily Returns

Caterpillar  vs.  Arga Value Institutional

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 comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Arga Value Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arga Value Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Arga Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and Arga Value

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

The idea behind Caterpillar and Arga Value Institutional 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.