Correlation Between Caterpillar and AVRO Old

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

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

Diversification Opportunities for Caterpillar and AVRO Old

-0.79

Correlation Coefficient

Caterpillar  AVRO Old

Pay attention - limited upside

The 3 months correlation between Caterpillar and AVRO is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AVRO Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVRO Old 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 AVRO Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVRO Old has no effect on the direction of Caterpillar i.e., Caterpillar and AVRO Old go up and down completely randomly.

Pair Corralation between Caterpillar and AVRO Old

Considering the 90-day investment horizon Caterpillar is expected to generate 1.47 times less return on investment than AVRO Old. But when comparing it to its historical volatility, Caterpillar is 2.32 times less risky than AVRO Old. It trades about 0.09 of its potential returns per unit of risk. AVRO Old is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  98.00  in AVRO Old on October 24, 2024 and sell it today you would earn a total of  42.00  from holding AVRO Old or generate 42.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	62.66%
Values	Daily Returns

Caterpillar  vs.  AVRO Old

Caterpillar

Risk-Adjusted Performance

0 of 100

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.

AVRO Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AVRO Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AVRO Old is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and AVRO Old

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

The idea behind Caterpillar and AVRO Old 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.