Correlation Between Caterpillar and Alpha Partners

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

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

Diversification Opportunities for Caterpillar and Alpha Partners

0.67

Correlation Coefficient

Caterpillar  Alpha Partners

Poor diversification

The 3 months correlation between Caterpillar and Alpha is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Alpha Partners Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Partners Technology 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 Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Partners Technology has no effect on the direction of Caterpillar i.e., Caterpillar and Alpha Partners go up and down completely randomly.

Pair Corralation between Caterpillar and Alpha Partners

If you would invest  33,902  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  6,709  from holding Caterpillar or generate 19.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.56%
Values	Daily Returns

Caterpillar  vs.  Alpha Partners Technology

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.

Alpha Partners Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alpha Partners Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Alpha Partners is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Caterpillar and Alpha Partners

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

The idea behind Caterpillar and Alpha Partners Technology 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.