Correlation Between American Superconductor and Caterpillar

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

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

Diversification Opportunities for American Superconductor and Caterpillar

0.48

Correlation Coefficient

American Superconductor  Caterpillar

Very weak diversification

The 3 months correlation between American and Caterpillar is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding American Superconductor and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and American Superconductor 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 American Superconductor 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 American Superconductor i.e., American Superconductor and Caterpillar go up and down completely randomly.

Pair Corralation between American Superconductor and Caterpillar

Given the investment horizon of 90 days American Superconductor is expected to generate 3.11 times more return on investment than Caterpillar. However, American Superconductor is 3.11 times more volatile than Caterpillar. It trades about 0.15 of its potential returns per unit of risk. Caterpillar is currently generating about 0.11 per unit of risk. If you would invest  2,022  in American Superconductor on August 30, 2024 and sell it today you would earn a total of  1,215  from holding American Superconductor or generate 60.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

American Superconductor  vs.  Caterpillar

American Superconductor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Superconductor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, American Superconductor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Superconductor and Caterpillar

The main advantage of trading using opposite American Superconductor and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Superconductor 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 American Superconductor 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.