Correlation Between Caterpillar and ETF Series

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

By analyzing existing cross correlation between Caterpillar and ETF Series Solutions, you can compare the effects of market volatilities on Caterpillar and ETF Series 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 ETF Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and ETF Series.

Diversification Opportunities for Caterpillar and ETF Series

0.34

Correlation Coefficient

Caterpillar  ETF Series

Weak diversification

The 3 months correlation between Caterpillar and ETF is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions 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 ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Caterpillar i.e., Caterpillar and ETF Series go up and down completely randomly.

Pair Corralation between Caterpillar and ETF Series

Considering the 90-day investment horizon Caterpillar is expected to generate 10.63 times more return on investment than ETF Series. However, Caterpillar is 10.63 times more volatile than ETF Series Solutions. It trades about 0.06 of its potential returns per unit of risk. ETF Series Solutions is currently generating about 0.07 per unit of risk. If you would invest  21,340  in Caterpillar on January 24, 2024 and sell it today you would earn a total of  14,421  from holding Caterpillar or generate 67.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	74.9%
Values	Daily Returns

Caterpillar  vs.  ETF Series Solutions

Caterpillar

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

ETF Series Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETF Series Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, ETF Series is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and ETF Series

The main advantage of trading using opposite Caterpillar and ETF Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, ETF Series 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 ETF Series will offset losses from the drop in ETF Series' long position.

The idea behind Caterpillar and ETF Series Solutions 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.