Correlation Between Caterpillar and Alpha Bank

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

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

Diversification Opportunities for Caterpillar and Alpha Bank

-0.38

Correlation Coefficient

Caterpillar  Alpha Bank

Very good diversification

The 3 months correlation between Caterpillar and Alpha is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Alpha Bank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Bank SA and Caterpillar 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 Caterpillar are associated (or correlated) with Alpha Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Bank SA has no effect on the direction of Caterpillar i.e., Caterpillar and Alpha Bank go up and down completely randomly.

Pair Corralation between Caterpillar and Alpha Bank

Considering the 90-day investment horizon Caterpillar is expected to generate 0.6 times more return on investment than Alpha Bank. However, Caterpillar is 1.68 times less risky than Alpha Bank. It trades about 0.13 of its potential returns per unit of risk. Alpha Bank SA is currently generating about -0.08 per unit of risk. If you would invest  37,652  in Caterpillar on September 4, 2024 and sell it today you would earn a total of  2,274  from holding Caterpillar or generate 6.04% return on investment over 90 days.

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

Caterpillar  vs.  Alpha Bank SA

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

Alpha Bank SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alpha Bank SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Caterpillar and Alpha Bank

The main advantage of trading using opposite Caterpillar and Alpha Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Alpha Bank 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 Alpha Bank will offset losses from the drop in Alpha Bank's long position.

The idea behind Caterpillar and Alpha Bank SA 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.