Correlation Between Caterpillar and Demant A/S
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Demant A/S 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 Demant A/S into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Demant AS ADR, you can compare the effects of market volatilities on Caterpillar and Demant A/S 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 Demant A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Demant A/S.
Diversification Opportunities for Caterpillar and Demant A/S
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Caterpillar and Demant is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Demant AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demant AS ADR 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 Demant A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demant AS ADR has no effect on the direction of Caterpillar i.e., Caterpillar and Demant A/S go up and down completely randomly.
Pair Corralation between Caterpillar and Demant A/S
Considering the 90-day investment horizon Caterpillar is expected to under-perform the Demant A/S. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.04 times less risky than Demant A/S. The stock trades about -0.16 of its potential returns per unit of risk. The Demant AS ADR is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 1,937 in Demant AS ADR on December 2, 2024 and sell it today you would lose (122.00) from holding Demant AS ADR or give up 6.3% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Caterpillar vs. Demant AS ADR
Performance |
Timeline |
Caterpillar |
Demant AS ADR |
Caterpillar and Demant A/S Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caterpillar and Demant A/S
The main advantage of trading using opposite Caterpillar and Demant A/S positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Demant A/S 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 Demant A/S will offset losses from the drop in Demant A/S's long position.Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
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Check out your portfolio center.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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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