Correlation Between Caterpillar and ZALANDO SE

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

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

Diversification Opportunities for Caterpillar and ZALANDO SE

0.78

Correlation Coefficient

Caterpillar  ZALANDO SE

Poor diversification

The 3 months correlation between Caterpillar and ZALANDO is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ZALANDO SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZALANDO SE ADR 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 ZALANDO SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZALANDO SE ADR has no effect on the direction of Caterpillar i.e., Caterpillar and ZALANDO SE go up and down completely randomly.

Pair Corralation between Caterpillar and ZALANDO SE

Considering the 90-day investment horizon Caterpillar is expected to under-perform the ZALANDO SE. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.85 times less risky than ZALANDO SE. The stock trades about -0.11 of its potential returns per unit of risk. The ZALANDO SE ADR is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  1,443  in ZALANDO SE ADR on September 8, 2024 and sell it today you would earn a total of  339.00  from holding ZALANDO SE ADR or generate 23.49% return on investment over 90 days.

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

Caterpillar  vs.  ZALANDO SE ADR

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

ZALANDO SE ADR

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZALANDO SE ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, ZALANDO SE showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and ZALANDO SE

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

The idea behind Caterpillar and ZALANDO SE ADR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.