Correlation Between Caterpillar and KraneShares

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

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

Diversification Opportunities for Caterpillar and KraneShares

-0.32

Correlation Coefficient

Caterpillar  KraneShares

Very good diversification

The 3 months correlation between Caterpillar and KraneShares is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and KraneShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares 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 KraneShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares has no effect on the direction of Caterpillar i.e., Caterpillar and KraneShares go up and down completely randomly.

Pair Corralation between Caterpillar and KraneShares

If you would invest  2,300  in KraneShares on September 19, 2024 and sell it today you would earn a total of  0.00  from holding KraneShares or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.76%
Values	Daily Returns

Caterpillar  vs.  KraneShares

Caterpillar

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

KraneShares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KraneShares has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, KraneShares is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Caterpillar and KraneShares

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

The idea behind Caterpillar and KraneShares 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.