Correlation Between Caterpillar and Harbor Dividend

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

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

Diversification Opportunities for Caterpillar and Harbor Dividend

0.86

Correlation Coefficient

Caterpillar  Harbor Dividend

Very poor diversification

The 3 months correlation between Caterpillar and Harbor is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Harbor Dividend Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harbor Dividend Growth 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 Harbor Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harbor Dividend Growth has no effect on the direction of Caterpillar i.e., Caterpillar and Harbor Dividend go up and down completely randomly.

Pair Corralation between Caterpillar and Harbor Dividend

Considering the 90-day investment horizon Caterpillar is expected to generate 2.37 times more return on investment than Harbor Dividend. However, Caterpillar is 2.37 times more volatile than Harbor Dividend Growth. It trades about 0.16 of its potential returns per unit of risk. Harbor Dividend Growth is currently generating about 0.13 per unit of risk. If you would invest  33,554  in Caterpillar on September 4, 2024 and sell it today you would earn a total of  6,697  from holding Caterpillar or generate 19.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Caterpillar  vs.  Harbor Dividend Growth

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

Harbor Dividend Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Harbor Dividend Growth are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward indicators, Harbor Dividend may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and Harbor Dividend

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

The idea behind Caterpillar and Harbor Dividend Growth 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 Transaction History module to view history of all your transactions and understand their impact on performance.