Correlation Between Caterpillar and IShares Intermediate

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

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

Diversification Opportunities for Caterpillar and IShares Intermediate

-0.71

Correlation Coefficient

Caterpillar  IShares Intermediate

Pay attention - limited upside

The 3 months correlation between Caterpillar and IShares is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares Intermediate Governmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Intermediate 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 IShares Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Intermediate has no effect on the direction of Caterpillar i.e., Caterpillar and IShares Intermediate go up and down completely randomly.

Pair Corralation between Caterpillar and IShares Intermediate

Considering the 90-day investment horizon Caterpillar is expected to under-perform the IShares Intermediate. In addition to that, Caterpillar is 9.23 times more volatile than iShares Intermediate GovernmentCredit. It trades about -0.08 of its total potential returns per unit of risk. iShares Intermediate GovernmentCredit is currently generating about 0.19 per unit of volatility. If you would invest  10,367  in iShares Intermediate GovernmentCredit on December 30, 2024 and sell it today you would earn a total of  223.00  from holding iShares Intermediate GovernmentCredit or generate 2.15% return on investment over 90 days.

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

Caterpillar  vs.  iShares Intermediate Governmen

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

iShares Intermediate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Intermediate GovernmentCredit are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, IShares Intermediate is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Caterpillar and IShares Intermediate

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

The idea behind Caterpillar and iShares Intermediate GovernmentCredit 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.