Correlation Between Caterpillar and Textainer Group

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

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

Diversification Opportunities for Caterpillar and Textainer Group

-0.28

Correlation Coefficient

Caterpillar  Textainer Group

Very good diversification

The 3 months correlation between Caterpillar and Textainer is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Textainer Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Textainer Group Holdings 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 Textainer Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Textainer Group Holdings has no effect on the direction of Caterpillar i.e., Caterpillar and Textainer Group go up and down completely randomly.

Pair Corralation between Caterpillar and Textainer Group

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Textainer Group. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 2.37 times less risky than Textainer Group. The stock trades about -0.05 of its potential returns per unit of risk. The Textainer Group Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  76.00  in Textainer Group Holdings on December 29, 2024 and sell it today you would earn a total of  0.00  from holding Textainer Group Holdings or generate 0.0% return on investment over 90 days.

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

Caterpillar  vs.  Textainer Group Holdings

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.

Textainer Group Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Textainer Group Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Textainer Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and Textainer Group

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

The idea behind Caterpillar and Textainer Group Holdings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.