Correlation Between Caterpillar and FT Cboe

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

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

Diversification Opportunities for Caterpillar and FT Cboe

0.9

Correlation Coefficient

Caterpillar  FT Cboe

Almost no diversification

The 3 months correlation between Caterpillar and KNG is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and FT Cboe Vest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT Cboe Vest 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 FT Cboe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT Cboe Vest has no effect on the direction of Caterpillar i.e., Caterpillar and FT Cboe go up and down completely randomly.

Pair Corralation between Caterpillar and FT Cboe

Considering the 90-day investment horizon Caterpillar is expected to generate 2.24 times more return on investment than FT Cboe. However, Caterpillar is 2.24 times more volatile than FT Cboe Vest. It trades about 0.12 of its potential returns per unit of risk. FT Cboe Vest is currently generating about -0.15 per unit of risk. If you would invest  35,190  in Caterpillar on January 17, 2024 and sell it today you would earn a total of  1,201  from holding Caterpillar or generate 3.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  FT Cboe Vest

Caterpillar

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 25 (%) 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.

FT Cboe Vest

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FT Cboe Vest are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FT Cboe is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and FT Cboe

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

The idea behind Caterpillar and FT Cboe Vest 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .