Correlation Between Caterpillar and ClearBridge Dividend

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

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

Diversification Opportunities for Caterpillar and ClearBridge Dividend

0.82

Correlation Coefficient

Caterpillar  ClearBridge Dividend

Very poor diversification

The 3 months correlation between Caterpillar and ClearBridge is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ClearBridge Dividend Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ClearBridge Dividend 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 ClearBridge Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ClearBridge Dividend has no effect on the direction of Caterpillar i.e., Caterpillar and ClearBridge Dividend go up and down completely randomly.

Pair Corralation between Caterpillar and ClearBridge Dividend

Considering the 90-day investment horizon Caterpillar is expected to generate 2.99 times more return on investment than ClearBridge Dividend. However, Caterpillar is 2.99 times more volatile than ClearBridge Dividend Strategy. It trades about 0.16 of its potential returns per unit of risk. ClearBridge Dividend Strategy is currently generating about 0.22 per unit of risk. If you would invest  33,554  in Caterpillar on September 4, 2024 and sell it today you would earn a total of  6,697  from holding Caterpillar or generate 19.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  ClearBridge Dividend Strategy

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 unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

ClearBridge Dividend

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ClearBridge Dividend Strategy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, ClearBridge Dividend may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and ClearBridge Dividend

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

The idea behind Caterpillar and ClearBridge Dividend Strategy 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.