Correlation Between Merrill Lynch and Caterpillar

Can any of the company-specific risk be diversified away by investing in both Merrill Lynch 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 Merrill Lynch and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merrill Lynch and Caterpillar, you can compare the effects of market volatilities on Merrill Lynch 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 Merrill Lynch with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merrill Lynch and Caterpillar.

Diversification Opportunities for Merrill Lynch and Caterpillar

0.0

Correlation Coefficient

Merrill Lynch  Caterpillar

Pay attention - limited upside

The 3 months correlation between Merrill and Caterpillar is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Merrill Lynch and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Merrill Lynch 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 Merrill Lynch 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 Merrill Lynch i.e., Merrill Lynch and Caterpillar go up and down completely randomly.

Pair Corralation between Merrill Lynch and Caterpillar

If you would invest (100.00) in Merrill Lynch on February 29, 2024 and sell it today you would earn a total of  100.00  from holding Merrill Lynch or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Merrill Lynch  vs.  Caterpillar

Merrill Lynch

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking indicators, Merrill Lynch is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Caterpillar

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Merrill Lynch and Caterpillar

The main advantage of trading using opposite Merrill Lynch and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merrill Lynch 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 Merrill Lynch 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.