Correlation Between Stryker and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Stryker 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 Stryker and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stryker and Caterpillar, you can compare the effects of market volatilities on Stryker 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 Stryker with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stryker and Caterpillar.
Diversification Opportunities for Stryker and Caterpillar
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Stryker and Caterpillar is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Stryker and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Stryker 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 Stryker 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 Stryker i.e., Stryker and Caterpillar go up and down completely randomly.
Pair Corralation between Stryker and Caterpillar
Considering the 90-day investment horizon Stryker is expected to generate 2.37 times less return on investment than Caterpillar. But when comparing it to its historical volatility, Stryker is 1.06 times less risky than Caterpillar. It trades about 0.11 of its potential returns per unit of risk. Caterpillar is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 29,834 in Caterpillar on January 26, 2024 and sell it today you would earn a total of 6,518 from holding Caterpillar or generate 21.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stryker vs. Caterpillar
Performance |
| Timeline |
| Stryker |
| Caterpillar |
Stryker and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stryker and Caterpillar
The main advantage of trading using opposite Stryker and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stryker 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.| Stryker vs. Orthopediatrics Corp | Stryker vs. Varex Imaging Corp | Stryker vs. Sight Sciences | Stryker vs. Iradimed Co |
| 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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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