Correlation Between Caterpillar and 00206RDH2

Can any of the company-specific risk be diversified away by investing in both Caterpillar and 00206RDH2 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 00206RDH2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and ATT INC 515, you can compare the effects of market volatilities on Caterpillar and 00206RDH2 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 00206RDH2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 00206RDH2.

Diversification Opportunities for Caterpillar and 00206RDH2

0.38

Correlation Coefficient

Caterpillar  00206RDH2

Weak diversification

The 3 months correlation between Caterpillar and 00206RDH2 is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ATT INC 515 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT INC 515 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 00206RDH2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT INC 515 has no effect on the direction of Caterpillar i.e., Caterpillar and 00206RDH2 go up and down completely randomly.

Pair Corralation between Caterpillar and 00206RDH2

Considering the 90-day investment horizon Caterpillar is expected to generate 1.15 times more return on investment than 00206RDH2. However, Caterpillar is 1.15 times more volatile than ATT INC 515. It trades about 0.16 of its potential returns per unit of risk. ATT INC 515 is currently generating about -0.06 per unit of risk. 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	Very Weak
Accuracy	85.94%
Values	Daily Returns

Caterpillar  vs.  ATT INC 515

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.

ATT INC 515

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ATT INC 515 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for ATT INC 515 investors.

Pair Trading with Caterpillar and 00206RDH2

The main advantage of trading using opposite Caterpillar and 00206RDH2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 00206RDH2 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 00206RDH2 will offset losses from the drop in 00206RDH2's long position.

The idea behind Caterpillar and ATT INC 515 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.