Correlation Between Cheniere Energy and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Cheniere Energy 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 Cheniere Energy and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cheniere Energy Partners and Caterpillar, you can compare the effects of market volatilities on Cheniere Energy 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 Cheniere Energy with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheniere Energy and Caterpillar.
Diversification Opportunities for Cheniere Energy and Caterpillar
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cheniere and Caterpillar is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy Partners and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Cheniere Energy 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 Cheniere Energy Partners 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 Cheniere Energy i.e., Cheniere Energy and Caterpillar go up and down completely randomly.
Pair Corralation between Cheniere Energy and Caterpillar
Considering the 90-day investment horizon Cheniere Energy is expected to generate 4.08 times less return on investment than Caterpillar. In addition to that, Cheniere Energy is 1.01 times more volatile than Caterpillar. It trades about 0.04 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.15 per unit of volatility. If you would invest 20,663 in Caterpillar on January 19, 2024 and sell it today you would earn a total of 15,130 from holding Caterpillar or generate 73.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cheniere Energy Partners vs. Caterpillar
Performance |
| Timeline |
| Cheniere Energy Partners |
| Caterpillar |
Cheniere Energy and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cheniere Energy and Caterpillar
The main advantage of trading using opposite Cheniere Energy and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheniere Energy 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.| Cheniere Energy vs. Plains All American | Cheniere Energy vs. NuStar Energy LP | Cheniere Energy vs. Genesis Energy LP | Cheniere Energy vs. Western Midstream Partners |
| Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. NikolaCorp | Caterpillar vs. PACCAR Inc |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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