Correlation Between SPDR DoubleLine and Caterpillar

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

Diversification Opportunities for SPDR DoubleLine and Caterpillar

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between SPDR and Caterpillar is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SPDR DoubleLine Short and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and SPDR DoubleLine 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 SPDR DoubleLine Short 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 SPDR DoubleLine i.e., SPDR DoubleLine and Caterpillar go up and down completely randomly.

Pair Corralation between SPDR DoubleLine and Caterpillar

Given the investment horizon of 90 days SPDR DoubleLine is expected to generate 18.14 times less return on investment than Caterpillar. But when comparing it to its historical volatility, SPDR DoubleLine Short is 15.61 times less risky than Caterpillar. It trades about 0.4 of its potential returns per unit of risk. Caterpillar is currently generating about 0.46 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  3,880  from holding Caterpillar or generate 11.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy95.65%
ValuesDaily Returns

SPDR DoubleLine Short  vs.  Caterpillar

 Performance 
       Timeline  
SPDR DoubleLine Short 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR DoubleLine Short are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR DoubleLine is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
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.

SPDR DoubleLine and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR DoubleLine and Caterpillar

The main advantage of trading using opposite SPDR DoubleLine and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR DoubleLine 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 SPDR DoubleLine Short 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.
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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