Correlation Between Caterpillar and Wahed FTSE

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

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

Diversification Opportunities for Caterpillar and Wahed FTSE

0.72

Correlation Coefficient

Caterpillar  Wahed FTSE

Poor diversification

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

Pair Corralation between Caterpillar and Wahed FTSE

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Wahed FTSE. In addition to that, Caterpillar is 1.67 times more volatile than Wahed FTSE USA. It trades about -0.08 of its total potential returns per unit of risk. Wahed FTSE USA is currently generating about -0.13 per unit of volatility. If you would invest  5,287  in Wahed FTSE USA on December 29, 2024 and sell it today you would lose (421.00) from holding Wahed FTSE USA or give up 7.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Caterpillar  vs.  Wahed FTSE USA

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.

Wahed FTSE USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wahed FTSE USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with Caterpillar and Wahed FTSE

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

The idea behind Caterpillar and Wahed FTSE USA 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.