Correlation Between Caterpillar and Lindsay
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Lindsay 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 Lindsay into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Lindsay, you can compare the effects of market volatilities on Caterpillar and Lindsay 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 Lindsay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Lindsay.
Diversification Opportunities for Caterpillar and Lindsay
-0.85 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Caterpillar and Lindsay is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Lindsay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lindsay 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 Lindsay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lindsay has no effect on the direction of Caterpillar i.e., Caterpillar and Lindsay go up and down completely randomly.
Pair Corralation between Caterpillar and Lindsay
Considering the 90-day investment horizon Caterpillar is expected to generate 0.85 times more return on investment than Lindsay. However, Caterpillar is 1.18 times less risky than Lindsay. It trades about 0.09 of its potential returns per unit of risk. Lindsay is currently generating about -0.02 per unit of risk. If you would invest 35,510 in Caterpillar on January 26, 2024 and sell it today you would earn a total of 842.00 from holding Caterpillar or generate 2.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Lindsay
Performance |
| Timeline |
| Caterpillar |
| Lindsay |
Caterpillar and Lindsay Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Lindsay
The main advantage of trading using opposite Caterpillar and Lindsay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Lindsay 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 Lindsay will offset losses from the drop in Lindsay's long position.| Caterpillar vs. NikolaCorp | Caterpillar vs. Ideanomics | Caterpillar vs. Lion Electric Corp | Caterpillar vs. Wabash National |
| Lindsay vs. NikolaCorp | Lindsay vs. Ideanomics | Lindsay vs. Lion Electric Corp | Lindsay vs. Wabash National |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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