Correlation Between Textainer Group and Caterpillar

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

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

Diversification Opportunities for Textainer Group and Caterpillar

-0.3

Correlation Coefficient

Textainer Group  Caterpillar

Very good diversification

The 3 months correlation between Textainer and Caterpillar is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Textainer Group Holdings and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Textainer Group 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 Textainer Group Holdings 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 Textainer Group i.e., Textainer Group and Caterpillar go up and down completely randomly.

Pair Corralation between Textainer Group and Caterpillar

Assuming the 90 days horizon Textainer Group Holdings is expected to generate 2.32 times more return on investment than Caterpillar. However, Textainer Group is 2.32 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  76.00  in Textainer Group Holdings on December 30, 2024 and sell it today you would earn a total of  0.00  from holding Textainer Group Holdings or generate 0.0% return on investment over 90 days.

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

Textainer Group Holdings  vs.  Caterpillar

Textainer Group Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Textainer Group Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Textainer Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Textainer Group and Caterpillar

The main advantage of trading using opposite Textainer Group and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textainer Group 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 Textainer Group Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.