Correlation Between Caterpillar and 025816CP2

Can any of the company-specific risk be diversified away by investing in both Caterpillar and 025816CP2 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 025816CP2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and AXP 33 03 MAY 27, you can compare the effects of market volatilities on Caterpillar and 025816CP2 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 025816CP2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 025816CP2.

Diversification Opportunities for Caterpillar and 025816CP2

-0.42

Correlation Coefficient

Caterpillar  025816CP2

Very good diversification

The 3 months correlation between Caterpillar and 025816CP2 is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AXP 33 03 MAY 27 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXP 33 03 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 025816CP2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXP 33 03 has no effect on the direction of Caterpillar i.e., Caterpillar and 025816CP2 go up and down completely randomly.

Pair Corralation between Caterpillar and 025816CP2

Considering the 90-day investment horizon Caterpillar is expected to generate 3.6 times more return on investment than 025816CP2. However, Caterpillar is 3.6 times more volatile than AXP 33 03 MAY 27. It trades about 0.07 of its potential returns per unit of risk. AXP 33 03 MAY 27 is currently generating about 0.0 per unit of risk. If you would invest  22,910  in Caterpillar on September 12, 2024 and sell it today you would earn a total of  15,929  from holding Caterpillar or generate 69.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.94%
Values	Daily Returns

Caterpillar  vs.  AXP 33 03 MAY 27

Caterpillar

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

AXP 33 03

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AXP 33 03 MAY 27 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 025816CP2 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and 025816CP2

The main advantage of trading using opposite Caterpillar and 025816CP2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 025816CP2 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 025816CP2 will offset losses from the drop in 025816CP2's long position.

The idea behind Caterpillar and AXP 33 03 MAY 27 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 Transaction History module to view history of all your transactions and understand their impact on performance.