Correlation Between Xtrackers ShortDAX and Caterpillar

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

By analyzing existing cross correlation between Xtrackers ShortDAX and Caterpillar, you can compare the effects of market volatilities on Xtrackers ShortDAX and Caterpillar 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 Xtrackers ShortDAX with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers ShortDAX and Caterpillar.

Diversification Opportunities for Xtrackers ShortDAX and Caterpillar

-0.64

Correlation Coefficient

Xtrackers ShortDAX  Caterpillar

Excellent diversification

The 3 months correlation between Xtrackers and Caterpillar is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ShortDAX and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Xtrackers ShortDAX 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 Xtrackers ShortDAX are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Xtrackers ShortDAX i.e., Xtrackers ShortDAX and Caterpillar go up and down completely randomly.

Pair Corralation between Xtrackers ShortDAX and Caterpillar

Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to under-perform the Caterpillar. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers ShortDAX is 1.22 times less risky than Caterpillar. The etf trades about -0.15 of its potential returns per unit of risk. The Caterpillar is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  31,029  in Caterpillar on September 13, 2024 and sell it today you would earn a total of  5,971  from holding Caterpillar or generate 19.24% return on investment over 90 days.

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

Xtrackers ShortDAX  vs.  Caterpillar

Xtrackers ShortDAX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers ShortDAX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Etf's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) 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.

Pair Trading with Xtrackers ShortDAX and Caterpillar

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

The idea behind Xtrackers ShortDAX and Caterpillar 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.