Correlation Between Caterpillar and INGERSOLL

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

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

Diversification Opportunities for Caterpillar and INGERSOLL

-0.33

Correlation Coefficient

Caterpillar  INGERSOLL

Very good diversification

The 3 months correlation between Caterpillar and INGERSOLL is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and INGERSOLL RAND GLOBAL HLDG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INGERSOLL RAND GLOBAL 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 INGERSOLL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INGERSOLL RAND GLOBAL has no effect on the direction of Caterpillar i.e., Caterpillar and INGERSOLL go up and down completely randomly.

Pair Corralation between Caterpillar and INGERSOLL

Considering the 90-day investment horizon Caterpillar is expected to under-perform the INGERSOLL. In addition to that, Caterpillar is 6.25 times more volatile than INGERSOLL RAND GLOBAL HLDG. It trades about -0.08 of its total potential returns per unit of risk. INGERSOLL RAND GLOBAL HLDG is currently generating about 0.0 per unit of volatility. If you would invest  9,689  in INGERSOLL RAND GLOBAL HLDG on September 19, 2024 and sell it today you would earn a total of  0.00  from holding INGERSOLL RAND GLOBAL HLDG or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Caterpillar  vs.  INGERSOLL RAND GLOBAL HLDG

Caterpillar

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

INGERSOLL RAND GLOBAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INGERSOLL RAND GLOBAL HLDG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, INGERSOLL 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 INGERSOLL

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

The idea behind Caterpillar and INGERSOLL RAND GLOBAL HLDG 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.