Correlation Between Caterpillar and Xtrackers MSCI

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

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

Diversification Opportunities for Caterpillar and Xtrackers MSCI

0.72

Correlation Coefficient

Caterpillar  Xtrackers MSCI

Poor diversification

The 3 months correlation between Caterpillar and Xtrackers is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Xtrackers MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EAFE 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 Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI EAFE has no effect on the direction of Caterpillar i.e., Caterpillar and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Caterpillar and Xtrackers MSCI

Considering the 90-day investment horizon Caterpillar is expected to generate 2.91 times more return on investment than Xtrackers MSCI. However, Caterpillar is 2.91 times more volatile than Xtrackers MSCI EAFE. It trades about 0.12 of its potential returns per unit of risk. Xtrackers MSCI EAFE is currently generating about 0.1 per unit of risk. If you would invest  33,836  in Caterpillar on September 12, 2024 and sell it today you would earn a total of  5,051  from holding Caterpillar or generate 14.93% return on investment over 90 days.

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

Caterpillar  vs.  Xtrackers MSCI EAFE

Caterpillar

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Xtrackers MSCI EAFE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and Xtrackers MSCI

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

The idea behind Caterpillar and Xtrackers MSCI EAFE 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.