Correlation Between Caterpillar and China CITIC

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

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

Diversification Opportunities for Caterpillar and China CITIC

0.0

Correlation Coefficient

Caterpillar  China CITIC

Pay attention - limited upside

The 3 months correlation between Caterpillar and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and China CITIC Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China CITIC Bank 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 China CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China CITIC Bank has no effect on the direction of Caterpillar i.e., Caterpillar and China CITIC go up and down completely randomly.

Pair Corralation between Caterpillar and China CITIC

If you would invest  33,902  in Caterpillar on August 31, 2024 and sell it today you would earn a total of  6,468  from holding Caterpillar or generate 19.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Caterpillar  vs.  China CITIC Bank

Caterpillar

Risk-Adjusted Performance

12 of 100

OK

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 unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

China CITIC Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China CITIC Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, China CITIC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and China CITIC

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

The idea behind Caterpillar and China CITIC Bank 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.