Correlation Between Caterpillar and IShares Global

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

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

Diversification Opportunities for Caterpillar and IShares Global

0.25

Correlation Coefficient

Caterpillar  IShares Global

Modest diversification

The 3 months correlation between Caterpillar and IShares is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and iShares Global Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Timber 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 IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Timber has no effect on the direction of Caterpillar i.e., Caterpillar and IShares Global go up and down completely randomly.

Pair Corralation between Caterpillar and IShares Global

Considering the 90-day investment horizon Caterpillar is expected to under-perform the IShares Global. In addition to that, Caterpillar is 1.62 times more volatile than iShares Global Timber. It trades about -0.07 of its total potential returns per unit of risk. iShares Global Timber is currently generating about 0.0 per unit of volatility. If you would invest  7,638  in iShares Global Timber on December 22, 2024 and sell it today you would lose (8.00) from holding iShares Global Timber or give up 0.1% of portfolio value over 90 days.

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

Caterpillar  vs.  iShares Global Timber

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.

iShares Global Timber

Risk-Adjusted Performance

Insignificant

Over the last 90 days iShares Global Timber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Global is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Caterpillar and IShares Global

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

The idea behind Caterpillar and iShares Global Timber 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.