Correlation Between Caterpillar and Kubota

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Can any of the company-specific risk be diversified away by investing in both Caterpillar and Kubota 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 Kubota into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Kubota, you can compare the effects of market volatilities on Caterpillar and Kubota 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 Kubota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Kubota.

Diversification Opportunities for Caterpillar and Kubota

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between Caterpillar and Kubota is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Kubota in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kubota 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 Kubota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kubota has no effect on the direction of Caterpillar i.e., Caterpillar and Kubota go up and down completely randomly.

Pair Corralation between Caterpillar and Kubota

Considering the 90-day investment horizon Caterpillar is expected to generate 0.94 times more return on investment than Kubota. However, Caterpillar is 1.07 times less risky than Kubota. It trades about -0.05 of its potential returns per unit of risk. Kubota is currently generating about -0.16 per unit of risk. If you would invest  38,446  in Caterpillar on September 18, 2024 and sell it today you would lose (554.00) from holding Caterpillar or give up 1.44% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Kubota

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Kubota 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Kubota has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Caterpillar and Kubota Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Kubota

The main advantage of trading using opposite Caterpillar and Kubota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Kubota 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 Kubota will offset losses from the drop in Kubota's long position.
The idea behind Caterpillar and Kubota 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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