Correlation Between 00108WAF7 and Caterpillar

Can any of the company-specific risk be diversified away by investing in both 00108WAF7 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 00108WAF7 and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AEP TEX INC and Caterpillar, you can compare the effects of market volatilities on 00108WAF7 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 00108WAF7 with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of 00108WAF7 and Caterpillar.

Diversification Opportunities for 00108WAF7 and Caterpillar

-0.1

Correlation Coefficient

00108WAF7  Caterpillar

Good diversification

The 3 months correlation between 00108WAF7 and Caterpillar is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding AEP TEX INC and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and 00108WAF7 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 AEP TEX INC 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 00108WAF7 i.e., 00108WAF7 and Caterpillar go up and down completely randomly.

Pair Corralation between 00108WAF7 and Caterpillar

Assuming the 90 days trading horizon AEP TEX INC is expected to generate 78.86 times more return on investment than Caterpillar. However, 00108WAF7 is 78.86 times more volatile than Caterpillar. It trades about 0.13 of its potential returns per unit of risk. Caterpillar is currently generating about 0.16 per unit of risk. If you would invest  7,607  in AEP TEX INC on September 3, 2024 and sell it today you would earn a total of  614.00  from holding AEP TEX INC or generate 8.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.44%
Values	Daily Returns

AEP TEX INC  vs.  Caterpillar

AEP TEX INC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, 00108WAF7 sustained solid returns over the last few months and may actually be approaching a breakup point.

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 comparatively fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 00108WAF7 and Caterpillar

The main advantage of trading using opposite 00108WAF7 and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 00108WAF7 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 AEP TEX INC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.