Correlation Between Kubota Corp and Caterpillar

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

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

Diversification Opportunities for Kubota Corp and Caterpillar

-0.29

Correlation Coefficient

Kubota Corp  Caterpillar

Very good diversification

The 3 months correlation between Kubota and Caterpillar is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Kubota Corp ADR and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Kubota Corp 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 Kubota Corp ADR are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Kubota Corp i.e., Kubota Corp and Caterpillar go up and down completely randomly.

Pair Corralation between Kubota Corp and Caterpillar

If you would invest  33,902  in Caterpillar on September 1, 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 Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Kubota Corp ADR  vs.  Caterpillar

Kubota Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kubota Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Kubota Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Kubota Corp and Caterpillar

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

The idea behind Kubota Corp ADR and Caterpillar 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.