Correlation Between Caterpillar and Vanguard Advice

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

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

Diversification Opportunities for Caterpillar and Vanguard Advice

0.93

Correlation Coefficient

Caterpillar  Vanguard Advice

Almost no diversification

The 3 months correlation between Caterpillar and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Vanguard Advice Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Advice Select 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 Vanguard Advice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Advice Select has no effect on the direction of Caterpillar i.e., Caterpillar and Vanguard Advice go up and down completely randomly.

Pair Corralation between Caterpillar and Vanguard Advice

Considering the 90-day investment horizon Caterpillar is expected to generate 1.61 times more return on investment than Vanguard Advice. However, Caterpillar is 1.61 times more volatile than Vanguard Advice Select. It trades about 0.16 of its potential returns per unit of risk. Vanguard Advice Select is currently generating about 0.13 per unit of risk. If you would invest  33,902  in Caterpillar on August 31, 2024 and sell it today you would earn a total of  6,468  from holding Caterpillar or generate 19.08% return on investment over 90 days.

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

Caterpillar  vs.  Vanguard Advice Select

Caterpillar

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Advice Select

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Advice Select are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Vanguard Advice may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Caterpillar and Vanguard Advice

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

The idea behind Caterpillar and Vanguard Advice Select 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 Stocks Directory module to find actively traded stocks across global markets.