Correlation Between Caterpillar and Invesco QQQ
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Invesco QQQ 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 Invesco QQQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Invesco QQQ Trust, you can compare the effects of market volatilities on Caterpillar and Invesco QQQ 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 Invesco QQQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Invesco QQQ.
Diversification Opportunities for Caterpillar and Invesco QQQ
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and Invesco is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Invesco QQQ Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco QQQ Trust 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 Invesco QQQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco QQQ Trust has no effect on the direction of Caterpillar i.e., Caterpillar and Invesco QQQ go up and down completely randomly.
Pair Corralation between Caterpillar and Invesco QQQ
Considering the 90-day investment horizon Caterpillar is expected to generate 1.56 times more return on investment than Invesco QQQ. However, Caterpillar is 1.56 times more volatile than Invesco QQQ Trust. It trades about 0.12 of its potential returns per unit of risk. Invesco QQQ Trust is currently generating about -0.08 per unit of risk. If you would invest 35,190 in Caterpillar on January 17, 2024 and sell it today you would earn a total of 1,201 from holding Caterpillar or generate 3.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
Caterpillar vs. Invesco QQQ Trust
Performance |
| Timeline |
| Caterpillar |
| Invesco QQQ Trust |
Caterpillar and Invesco QQQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Invesco QQQ
The main advantage of trading using opposite Caterpillar and Invesco QQQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Invesco QQQ 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 Invesco QQQ will offset losses from the drop in Invesco QQQ's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. NikolaCorp | Caterpillar vs. PACCAR Inc |
| Invesco QQQ vs. HUMANA INC | Invesco QQQ vs. Sparta Capital | Invesco QQQ vs. T Rowe Price | Invesco QQQ vs. Bondbloxx ETF Trust |
Check out your portfolio center.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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