Correlation Between Caterpillar and Arts Way
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Arts Way 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 Caterpillar and Arts Way into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Arts Way Manufacturing Co, you can compare the effects of market volatilities on Caterpillar and Arts Way 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 Caterpillar with a short position of Arts Way. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Arts Way.
Diversification Opportunities for Caterpillar and Arts Way
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Caterpillar and Arts is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Arts Way Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arts Way Manufacturing and Caterpillar 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 Caterpillar are associated (or correlated) with Arts Way. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arts Way Manufacturing has no effect on the direction of Caterpillar i.e., Caterpillar and Arts Way go up and down completely randomly.
Pair Corralation between Caterpillar and Arts Way
Considering the 90-day investment horizon Caterpillar is expected to generate 0.42 times more return on investment than Arts Way. However, Caterpillar is 2.39 times less risky than Arts Way. It trades about 0.27 of its potential returns per unit of risk. Arts Way Manufacturing Co is currently generating about -0.01 per unit of risk. If you would invest 28,867 in Caterpillar on January 20, 2024 and sell it today you would earn a total of 6,926 from holding Caterpillar or generate 23.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Arts Way Manufacturing Co
Performance |
| Timeline |
| Caterpillar |
| Arts Way Manufacturing |
Caterpillar and Arts Way Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Arts Way
The main advantage of trading using opposite Caterpillar and Arts Way positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Arts Way 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 Arts Way will offset losses from the drop in Arts Way's long position.| 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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