Correlation Between Caterpillar and Trans Global

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

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

Diversification Opportunities for Caterpillar and Trans Global

0.0

Correlation Coefficient

Caterpillar  Trans Global

Pay attention - limited upside

The 3 months correlation between Caterpillar and Trans is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Trans Global Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trans Global Grp 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 Trans Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trans Global Grp has no effect on the direction of Caterpillar i.e., Caterpillar and Trans Global go up and down completely randomly.

Pair Corralation between Caterpillar and Trans Global

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Trans Global. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 26.92 times less risky than Trans Global. The stock trades about -0.05 of its potential returns per unit of risk. The Trans Global Grp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Trans Global Grp on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Trans Global Grp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  Trans Global Grp

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 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.

Trans Global Grp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trans Global Grp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting technical and fundamental indicators, Trans Global demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Trans Global

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

The idea behind Caterpillar and Trans Global Grp 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.