Correlation Between Caterpillar and WIMFARM SA

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

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

Diversification Opportunities for Caterpillar and WIMFARM SA

-0.39

Correlation Coefficient

Caterpillar  WIMFARM SA

Very good diversification

The 3 months correlation between Caterpillar and WIMFARM is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and WIMFARM SA EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WIMFARM SA EO 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 WIMFARM SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WIMFARM SA EO has no effect on the direction of Caterpillar i.e., Caterpillar and WIMFARM SA go up and down completely randomly.

Pair Corralation between Caterpillar and WIMFARM SA

Assuming the 90 days trading horizon Caterpillar is expected to generate 0.41 times more return on investment than WIMFARM SA. However, Caterpillar is 2.43 times less risky than WIMFARM SA. It trades about 0.19 of its potential returns per unit of risk. WIMFARM SA EO is currently generating about 0.04 per unit of risk. If you would invest  30,879  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  7,871  from holding Caterpillar or generate 25.49% return on investment over 90 days.

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

Caterpillar  vs.  WIMFARM SA EO

Caterpillar

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Caterpillar exhibited solid returns over the last few months and may actually be approaching a breakup point.

WIMFARM SA EO

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WIMFARM SA EO are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WIMFARM SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and WIMFARM SA

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

The idea behind Caterpillar and WIMFARM SA EO 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 Global Correlations module to find global opportunities by holding instruments from different markets.