Correlation Between Caterpillar and Magazine Luiza

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

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

Diversification Opportunities for Caterpillar and Magazine Luiza

-0.59

Correlation Coefficient

Caterpillar  Magazine Luiza

Excellent diversification

The 3 months correlation between Caterpillar and Magazine is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Magazine Luiza SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magazine Luiza 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 Magazine Luiza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magazine Luiza SA has no effect on the direction of Caterpillar i.e., Caterpillar and Magazine Luiza go up and down completely randomly.

Pair Corralation between Caterpillar and Magazine Luiza

Considering the 90-day investment horizon Caterpillar is expected to generate 0.6 times more return on investment than Magazine Luiza. However, Caterpillar is 1.66 times less risky than Magazine Luiza. It trades about 0.06 of its potential returns per unit of risk. Magazine Luiza SA is currently generating about -0.12 per unit of risk. If you would invest  35,385  in Caterpillar on September 18, 2024 and sell it today you would earn a total of  2,181  from holding Caterpillar or generate 6.16% return on investment over 90 days.

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

Caterpillar  vs.  Magazine Luiza SA

Caterpillar

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Magazine Luiza SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magazine Luiza SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Caterpillar and Magazine Luiza

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

The idea behind Caterpillar and Magazine Luiza 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.