Correlation Between Caterpillar and Investment Managers

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

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

Diversification Opportunities for Caterpillar and Investment Managers

0.73

Correlation Coefficient

Caterpillar  Investment Managers

Poor diversification

The 3 months correlation between Caterpillar and Investment is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Investment Managers Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Managers 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 Investment Managers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Managers has no effect on the direction of Caterpillar i.e., Caterpillar and Investment Managers go up and down completely randomly.

Pair Corralation between Caterpillar and Investment Managers

Considering the 90-day investment horizon Caterpillar is expected to generate 2.6 times more return on investment than Investment Managers. However, Caterpillar is 2.6 times more volatile than Investment Managers Series. It trades about 0.04 of its potential returns per unit of risk. Investment Managers Series is currently generating about 0.02 per unit of risk. If you would invest  38,456  in Caterpillar on October 25, 2024 and sell it today you would earn a total of  1,305  from holding Caterpillar or generate 3.39% return on investment over 90 days.

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

Caterpillar  vs.  Investment Managers Series

Caterpillar

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 3 (%) 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.

Investment Managers

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Caterpillar and Investment Managers

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

The idea behind Caterpillar and Investment Managers Series 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.