Correlation Between Caterpillar and Crane
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Crane 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 Crane into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Crane Company, you can compare the effects of market volatilities on Caterpillar and Crane 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 Crane. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Crane.
Diversification Opportunities for Caterpillar and Crane
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Caterpillar and Crane is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Crane Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crane Company 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 Crane. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crane Company has no effect on the direction of Caterpillar i.e., Caterpillar and Crane go up and down completely randomly.
Pair Corralation between Caterpillar and Crane
Considering the 90-day investment horizon Caterpillar is expected to generate 1.18 times more return on investment than Crane. However, Caterpillar is 1.18 times more volatile than Crane Company. It trades about -0.01 of its potential returns per unit of risk. Crane Company is currently generating about -0.11 per unit of risk. If you would invest 35,645 in Caterpillar on January 20, 2024 and sell it today you would lose (179.00) from holding Caterpillar or give up 0.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Crane Company
Performance |
| Timeline |
| Caterpillar |
| Crane Company |
Caterpillar and Crane Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Crane
The main advantage of trading using opposite Caterpillar and Crane positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Crane 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 Crane will offset losses from the drop in Crane'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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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