Correlation Between Caterpillar and Vanguard Mega

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

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

Diversification Opportunities for Caterpillar and Vanguard Mega

0.65

Correlation Coefficient

Caterpillar  Vanguard Mega

Poor diversification

The 3 months correlation between Caterpillar and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Vanguard Mega Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mega Cap 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 Vanguard Mega. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mega Cap has no effect on the direction of Caterpillar i.e., Caterpillar and Vanguard Mega go up and down completely randomly.

Pair Corralation between Caterpillar and Vanguard Mega

Considering the 90-day investment horizon Caterpillar is expected to generate 1.16 times more return on investment than Vanguard Mega. However, Caterpillar is 1.16 times more volatile than Vanguard Mega Cap. It trades about -0.08 of its potential returns per unit of risk. Vanguard Mega Cap is currently generating about -0.12 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.  Vanguard Mega 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.

Vanguard Mega Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mega Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's technical and fundamental 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 Vanguard Mega

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

The idea behind Caterpillar and Vanguard Mega 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.