Correlation Between Caterpillar and Xtrackers Cybersecurity

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

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

Diversification Opportunities for Caterpillar and Xtrackers Cybersecurity

0.79

Correlation Coefficient

Caterpillar  Xtrackers Cybersecurity

Poor diversification

The 3 months correlation between Caterpillar and Xtrackers is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Xtrackers Cybersecurity Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Cybersecurity 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 Xtrackers Cybersecurity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Cybersecurity has no effect on the direction of Caterpillar i.e., Caterpillar and Xtrackers Cybersecurity go up and down completely randomly.

Pair Corralation between Caterpillar and Xtrackers Cybersecurity

Considering the 90-day investment horizon Caterpillar is expected to generate 1.69 times more return on investment than Xtrackers Cybersecurity. However, Caterpillar is 1.69 times more volatile than Xtrackers Cybersecurity Select. It trades about 0.11 of its potential returns per unit of risk. Xtrackers Cybersecurity Select is currently generating about 0.09 per unit of risk. If you would invest  35,483  in Caterpillar on August 30, 2024 and sell it today you would earn a total of  4,887  from holding Caterpillar or generate 13.77% return on investment over 90 days.

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

Caterpillar  vs.  Xtrackers Cybersecurity Select

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.

Xtrackers Cybersecurity

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Cybersecurity Select are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Xtrackers Cybersecurity may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Caterpillar and Xtrackers Cybersecurity

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

The idea behind Caterpillar and Xtrackers Cybersecurity Select 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.