Correlation Between Caterpillar and IShares Short

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

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

Diversification Opportunities for Caterpillar and IShares Short

-0.6

Correlation Coefficient

Caterpillar  IShares Short

Excellent diversification

The 3 months correlation between Caterpillar and IShares is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares Short Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Short Treasury 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Short Treasury has no effect on the direction of Caterpillar i.e., Caterpillar and IShares Short go up and down completely randomly.

Pair Corralation between Caterpillar and IShares Short

Considering the 90-day investment horizon Caterpillar is expected to under-perform the IShares Short. In addition to that, Caterpillar is 124.19 times more volatile than iShares Short Treasury. It trades about -0.18 of its total potential returns per unit of risk. iShares Short Treasury is currently generating about 1.4 per unit of volatility. If you would invest  10,926  in iShares Short Treasury on November 28, 2024 and sell it today you would earn a total of  112.00  from holding iShares Short Treasury or generate 1.03% return on investment over 90 days.

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

Caterpillar  vs.  iShares Short Treasury

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

iShares Short Treasury

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Treasury are ranked lower than 96 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical indicators, IShares Short is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Caterpillar and IShares Short

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

The idea behind Caterpillar and iShares Short Treasury 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.