Correlation Between Caterpillar and IShares Morningstar

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

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

Diversification Opportunities for Caterpillar and IShares Morningstar

0.78

Correlation Coefficient

Caterpillar  IShares Morningstar

Poor diversification

The 3 months correlation between Caterpillar and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Caterpillar i.e., Caterpillar and IShares Morningstar go up and down completely randomly.

Pair Corralation between Caterpillar and IShares Morningstar

Considering the 90-day investment horizon Caterpillar is expected to generate 1.32 times more return on investment than IShares Morningstar. However, Caterpillar is 1.32 times more volatile than iShares Morningstar Small Cap. It trades about -0.08 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about -0.11 per unit of risk. If you would invest  36,168  in Caterpillar on December 30, 2024 and sell it today you would lose (3,199) from holding Caterpillar or give up 8.84% of portfolio value over 90 days.

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

Caterpillar  vs.  iShares Morningstar Small Cap

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 Morningstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Morningstar Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's forward-looking signals 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 IShares Morningstar

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

The idea behind Caterpillar and iShares Morningstar Small Cap 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.