Correlation Between Western Asset and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Western Asset 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 Western Asset and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset Mortgage and Caterpillar, you can compare the effects of market volatilities on Western Asset 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 Western Asset with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Caterpillar.
Diversification Opportunities for Western Asset and Caterpillar
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Western and Caterpillar is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Mortgage and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Western Asset 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 Western Asset Mortgage 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 Western Asset i.e., Western Asset and Caterpillar go up and down completely randomly.
Pair Corralation between Western Asset and Caterpillar
If you would invest 35,466 in Caterpillar on January 25, 2024 and sell it today you would earn a total of 859.00 from holding Caterpillar or generate 2.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 4.76% |
| Values | Daily Returns |
Western Asset Mortgage vs. Caterpillar
Performance |
| Timeline |
| Western Asset Mortgage |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Caterpillar |
Western Asset and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Caterpillar
The main advantage of trading using opposite Western Asset and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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.| Western Asset vs. Granite Point Mortgage | Western Asset vs. Invesco Mortgage Capital | Western Asset vs. Ellington Residential Mortgage | Western Asset vs. Chimera Investment |
| Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. Deere Company | Caterpillar vs. Lindsay |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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