Correlation Between Caterpillar and Wyndham

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

By analyzing existing cross correlation between Caterpillar and Wyndham Destinations 45, you can compare the effects of market volatilities on Caterpillar and Wyndham 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 Wyndham. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Wyndham.

Diversification Opportunities for Caterpillar and Wyndham

0.65

Correlation Coefficient

Caterpillar  Wyndham

Poor diversification

The 3 months correlation between Caterpillar and Wyndham is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Wyndham Destinations 45 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Destinations 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 Wyndham. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Destinations has no effect on the direction of Caterpillar i.e., Caterpillar and Wyndham go up and down completely randomly.

Pair Corralation between Caterpillar and Wyndham

Considering the 90-day investment horizon Caterpillar is expected to generate 6.76 times more return on investment than Wyndham. However, Caterpillar is 6.76 times more volatile than Wyndham Destinations 45. It trades about 0.01 of its potential returns per unit of risk. Wyndham Destinations 45 is currently generating about -0.04 per unit of risk. If you would invest  38,573  in Caterpillar on October 23, 2024 and sell it today you would earn a total of  29.00  from holding Caterpillar or generate 0.08% return on investment over 90 days.

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

Caterpillar  vs.  Wyndham Destinations 45

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.

Wyndham Destinations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wyndham Destinations 45 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Wyndham is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and Wyndham

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

The idea behind Caterpillar and Wyndham Destinations 45 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.