Correlation Between Caterpillar and EA Series

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

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

Diversification Opportunities for Caterpillar and EA Series

0.85

Correlation Coefficient

Caterpillar  EA Series

Very poor diversification

The 3 months correlation between Caterpillar and STRV is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and EA Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EA Series Trust 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 EA Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EA Series Trust has no effect on the direction of Caterpillar i.e., Caterpillar and EA Series go up and down completely randomly.

Pair Corralation between Caterpillar and EA Series

Considering the 90-day investment horizon Caterpillar is expected to generate 2.12 times more return on investment than EA Series. However, Caterpillar is 2.12 times more volatile than EA Series Trust. It trades about 0.07 of its potential returns per unit of risk. EA Series Trust is currently generating about 0.12 per unit of risk. If you would invest  24,600  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  16,011  from holding Caterpillar or generate 65.09% return on investment over 90 days.

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

Caterpillar  vs.  EA Series Trust

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

EA Series Trust

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EA Series Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, EA Series may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and EA Series

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

The idea behind Caterpillar and EA Series Trust 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 Global Correlations module to find global opportunities by holding instruments from different markets.