Correlation Between Hino Motors and Caterpillar

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

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

Diversification Opportunities for Hino Motors and Caterpillar

0.65

Correlation Coefficient

Hino Motors  Caterpillar

Poor diversification

The 3 months correlation between Hino and Caterpillar is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hino Motors Ltd and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Hino Motors 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 Hino Motors Ltd 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 Hino Motors i.e., Hino Motors and Caterpillar go up and down completely randomly.

Pair Corralation between Hino Motors and Caterpillar

Assuming the 90 days horizon Hino Motors Ltd is expected to generate 1.81 times more return on investment than Caterpillar. However, Hino Motors is 1.81 times more volatile than Caterpillar. It trades about 0.02 of its potential returns per unit of risk. Caterpillar is currently generating about -0.08 per unit of risk. If you would invest  3,203  in Hino Motors Ltd on December 28, 2024 and sell it today you would earn a total of  31.00  from holding Hino Motors Ltd or generate 0.97% return on investment over 90 days.

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

Hino Motors Ltd  vs.  Caterpillar

Hino Motors

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hino Motors Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Hino Motors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Hino Motors and Caterpillar

The main advantage of trading using opposite Hino Motors and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hino Motors 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 Hino Motors Ltd 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.