Correlation Between Caterpillar and VictoryShares 500

Can any of the company-specific risk be diversified away by investing in both Caterpillar and VictoryShares 500 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 VictoryShares 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and VictoryShares 500 Enhanced, you can compare the effects of market volatilities on Caterpillar and VictoryShares 500 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 VictoryShares 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and VictoryShares 500.

Diversification Opportunities for Caterpillar and VictoryShares 500

0.83

Correlation Coefficient

Caterpillar  VictoryShares 500

Very poor diversification

The 3 months correlation between Caterpillar and VictoryShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and VictoryShares 500 Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares 500 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 VictoryShares 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares 500 has no effect on the direction of Caterpillar i.e., Caterpillar and VictoryShares 500 go up and down completely randomly.

Pair Corralation between Caterpillar and VictoryShares 500

Considering the 90-day investment horizon Caterpillar is expected to generate 2.85 times more return on investment than VictoryShares 500. However, Caterpillar is 2.85 times more volatile than VictoryShares 500 Enhanced. It trades about 0.15 of its potential returns per unit of risk. VictoryShares 500 Enhanced is currently generating about 0.23 per unit of risk. If you would invest  33,902  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  6,349  from holding Caterpillar or generate 18.73% return on investment over 90 days.

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

Caterpillar  vs.  VictoryShares 500 Enhanced

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

VictoryShares 500

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VictoryShares 500 Enhanced are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, VictoryShares 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and VictoryShares 500

The main advantage of trading using opposite Caterpillar and VictoryShares 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, VictoryShares 500 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 VictoryShares 500 will offset losses from the drop in VictoryShares 500's long position.

The idea behind Caterpillar and VictoryShares 500 Enhanced 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.