Correlation Between Caterpillar and 14040HCX1

Can any of the company-specific risk be diversified away by investing in both Caterpillar and 14040HCX1 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 14040HCX1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and COF 5468 01 FEB 29, you can compare the effects of market volatilities on Caterpillar and 14040HCX1 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 14040HCX1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 14040HCX1.

Diversification Opportunities for Caterpillar and 14040HCX1

0.5

Correlation Coefficient

Caterpillar  14040HCX1

Very weak diversification

The 3 months correlation between Caterpillar and 14040HCX1 is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and COF 5468 01 FEB 29 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COF 5468 01 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 14040HCX1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COF 5468 01 has no effect on the direction of Caterpillar i.e., Caterpillar and 14040HCX1 go up and down completely randomly.

Pair Corralation between Caterpillar and 14040HCX1

Considering the 90-day investment horizon Caterpillar is expected to generate 1.57 times more return on investment than 14040HCX1. However, Caterpillar is 1.57 times more volatile than COF 5468 01 FEB 29. It trades about 0.23 of its potential returns per unit of risk. COF 5468 01 FEB 29 is currently generating about -0.26 per unit of risk. If you would invest  36,539  in Caterpillar on October 23, 2024 and sell it today you would earn a total of  2,063  from holding Caterpillar or generate 5.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.0%
Values	Daily Returns

Caterpillar  vs.  COF 5468 01 FEB 29

Caterpillar

Risk-Adjusted Performance

0 of 100

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.

COF 5468 01

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COF 5468 01 FEB 29 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 14040HCX1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and 14040HCX1

The main advantage of trading using opposite Caterpillar and 14040HCX1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 14040HCX1 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 14040HCX1 will offset losses from the drop in 14040HCX1's long position.

The idea behind Caterpillar and COF 5468 01 FEB 29 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.