Correlation Between Caterpillar and American Express
Can any of the company-specific risk be diversified away by investing in both Caterpillar and American Express 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 American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and American Express, you can compare the effects of market volatilities on Caterpillar and American Express 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 American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and American Express.
Diversification Opportunities for Caterpillar and American Express
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and American is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Caterpillar i.e., Caterpillar and American Express go up and down completely randomly.
Pair Corralation between Caterpillar and American Express
Considering the 90-day investment horizon Caterpillar is expected to generate 1.01 times more return on investment than American Express. However, Caterpillar is 1.01 times more volatile than American Express. It trades about -0.08 of its potential returns per unit of risk. American Express is currently generating about -0.1 per unit of risk. If you would invest 36,168 in Caterpillar on December 30, 2024 and sell it today you would lose (3,199) from holding Caterpillar or give up 8.84% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Caterpillar vs. American Express
Performance |
Timeline |
Caterpillar |
American Express |
Caterpillar and American Express Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caterpillar and American Express
The main advantage of trading using opposite Caterpillar and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, American Express 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 American Express will offset losses from the drop in American Express' long position.Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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