Correlation Between Kubota and Caterpillar

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

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

Diversification Opportunities for Kubota and Caterpillar

-0.34

Correlation Coefficient

Kubota  Caterpillar

Very good diversification

The 3 months correlation between Kubota and Caterpillar is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Kubota and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Kubota 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 Kubota 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 Kubota i.e., Kubota and Caterpillar go up and down completely randomly.

Pair Corralation between Kubota and Caterpillar

Assuming the 90 days horizon Kubota is expected to under-perform the Caterpillar. In addition to that, Kubota is 1.09 times more volatile than Caterpillar. It trades about -0.16 of its total potential returns per unit of risk. Caterpillar is currently generating about -0.08 per unit of volatility. If you would invest  38,446  in Caterpillar on September 18, 2024 and sell it today you would lose (866.00) from holding Caterpillar or give up 2.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Kubota  vs.  Caterpillar

Kubota

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kubota has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock'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 company stockholders.

Caterpillar

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kubota and Caterpillar

The main advantage of trading using opposite Kubota and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kubota 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 Kubota 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.