Correlation Between Caterpillar and Citic Telecom

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

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

Diversification Opportunities for Caterpillar and Citic Telecom

0.8

Correlation Coefficient

Caterpillar  Citic Telecom

Very poor diversification

The 3 months correlation between Caterpillar and Citic is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Citic Telecom International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Telecom Intern 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 Citic Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citic Telecom Intern has no effect on the direction of Caterpillar i.e., Caterpillar and Citic Telecom go up and down completely randomly.

Pair Corralation between Caterpillar and Citic Telecom

Assuming the 90 days trading horizon Caterpillar is expected to generate 0.79 times more return on investment than Citic Telecom. However, Caterpillar is 1.27 times less risky than Citic Telecom. It trades about 0.18 of its potential returns per unit of risk. Citic Telecom International is currently generating about 0.09 per unit of risk. If you would invest  30,481  in Caterpillar on September 12, 2024 and sell it today you would earn a total of  7,019  from holding Caterpillar or generate 23.03% return on investment over 90 days.

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

Caterpillar  vs.  Citic Telecom International

Caterpillar

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 14 (%) 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.

Citic Telecom Intern

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Telecom International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Citic Telecom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Citic Telecom

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

The idea behind Caterpillar and Citic Telecom International 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.