Correlation Between Caterpillar and TRAVELERS

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

By analyzing existing cross correlation between Caterpillar and TRAVELERS INC 625, you can compare the effects of market volatilities on Caterpillar and TRAVELERS 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 TRAVELERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and TRAVELERS.

Diversification Opportunities for Caterpillar and TRAVELERS

-0.47

Correlation Coefficient

Caterpillar  TRAVELERS

Very good diversification

The 3 months correlation between Caterpillar and TRAVELERS is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and TRAVELERS INC 625 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVELERS INC 625 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 TRAVELERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVELERS INC 625 has no effect on the direction of Caterpillar i.e., Caterpillar and TRAVELERS go up and down completely randomly.

Pair Corralation between Caterpillar and TRAVELERS

Considering the 90-day investment horizon Caterpillar is expected to generate 1.68 times more return on investment than TRAVELERS. However, Caterpillar is 1.68 times more volatile than TRAVELERS INC 625. It trades about 0.09 of its potential returns per unit of risk. TRAVELERS INC 625 is currently generating about -0.08 per unit of risk. If you would invest  34,671  in Caterpillar on September 16, 2024 and sell it today you would earn a total of  3,380  from holding Caterpillar or generate 9.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.38%
Values	Daily Returns

Caterpillar  vs.  TRAVELERS INC 625

Caterpillar

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TRAVELERS INC 625

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRAVELERS INC 625 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TRAVELERS 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 TRAVELERS

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

The idea behind Caterpillar and TRAVELERS INC 625 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 CEOs Directory module to screen CEOs from public companies around the world.