Correlation Between Caterpillar and VOLVO B

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

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

Diversification Opportunities for Caterpillar and VOLVO B

-0.66

Correlation Coefficient

Caterpillar  VOLVO B

Excellent diversification

The 3 months correlation between Caterpillar and VOLVO is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and VOLVO B UNSPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLVO B UNSPADR 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 VOLVO B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLVO B UNSPADR has no effect on the direction of Caterpillar i.e., Caterpillar and VOLVO B go up and down completely randomly.

Pair Corralation between Caterpillar and VOLVO B

Assuming the 90 days trading horizon Caterpillar is expected to under-perform the VOLVO B. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.01 times less risky than VOLVO B. The stock trades about -0.15 of its potential returns per unit of risk. The VOLVO B UNSPADR is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,300  in VOLVO B UNSPADR on December 1, 2024 and sell it today you would earn a total of  720.00  from holding VOLVO B UNSPADR or generate 31.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Caterpillar  vs.  VOLVO B UNSPADR

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 unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

VOLVO B UNSPADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VOLVO B UNSPADR are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, VOLVO B reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and VOLVO B

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

The idea behind Caterpillar and VOLVO B UNSPADR 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.