Correlation Between Caterpillar and 482480AG5

Can any of the company-specific risk be diversified away by investing in both Caterpillar and 482480AG5 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 482480AG5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and KLA TENCOR PORATION, you can compare the effects of market volatilities on Caterpillar and 482480AG5 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 482480AG5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 482480AG5.

Diversification Opportunities for Caterpillar and 482480AG5

0.62

Correlation Coefficient

Caterpillar  482480AG5

Poor diversification

The 3 months correlation between Caterpillar and 482480AG5 is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and KLA TENCOR PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA TENCOR PORATION 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 482480AG5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA TENCOR PORATION has no effect on the direction of Caterpillar i.e., Caterpillar and 482480AG5 go up and down completely randomly.

Pair Corralation between Caterpillar and 482480AG5

Considering the 90-day investment horizon Caterpillar is expected to under-perform the 482480AG5. In addition to that, Caterpillar is 5.65 times more volatile than KLA TENCOR PORATION. It trades about -0.07 of its total potential returns per unit of risk. KLA TENCOR PORATION is currently generating about 0.01 per unit of volatility. If you would invest  9,777  in KLA TENCOR PORATION on November 20, 2024 and sell it today you would earn a total of  11.00  from holding KLA TENCOR PORATION or generate 0.11% return on investment over 90 days.

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

Caterpillar  vs.  KLA TENCOR PORATION

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

KLA TENCOR PORATION

Risk-Adjusted Performance

Very Weak

Over the last 90 days KLA TENCOR PORATION has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 482480AG5 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and 482480AG5

The main advantage of trading using opposite Caterpillar and 482480AG5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 482480AG5 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 482480AG5 will offset losses from the drop in 482480AG5's long position.

The idea behind Caterpillar and KLA TENCOR PORATION 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.