Correlation Between AGNC Investment and Caterpillar

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Can any of the company-specific risk be diversified away by investing in both AGNC Investment 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 AGNC Investment and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AGNC Investment Corp and Caterpillar, you can compare the effects of market volatilities on AGNC Investment 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 AGNC Investment with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGNC Investment and Caterpillar.

Diversification Opportunities for AGNC Investment and Caterpillar

0.21
  Correlation Coefficient

Modest diversification

The 3 months correlation between AGNC and Caterpillar is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding AGNC Investment Corp and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and AGNC Investment 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 AGNC Investment Corp 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 AGNC Investment i.e., AGNC Investment and Caterpillar go up and down completely randomly.

Pair Corralation between AGNC Investment and Caterpillar

Given the investment horizon of 90 days AGNC Investment is expected to generate 3.29 times less return on investment than Caterpillar. But when comparing it to its historical volatility, AGNC Investment Corp is 1.04 times less risky than Caterpillar. It trades about 0.14 of its potential returns per unit of risk. Caterpillar is currently generating about 0.45 of returns per unit of risk over similar time horizon. If you would invest  32,763  in Caterpillar on December 29, 2023 and sell it today you would earn a total of  3,702  from holding Caterpillar or generate 11.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.65%
ValuesDaily Returns

AGNC Investment Corp  vs.  Caterpillar

 Performance 
       Timeline  
AGNC Investment Corp 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in AGNC Investment Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, AGNC Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Caterpillar 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

AGNC Investment and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AGNC Investment and Caterpillar

The main advantage of trading using opposite AGNC Investment and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AGNC Investment 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 AGNC Investment Corp 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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