Correlation Between News Corp and Caterpillar

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

By analyzing existing cross correlation between News Corp A and Caterpillar, you can compare the effects of market volatilities on News Corp and Caterpillar 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 News Corp with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of News Corp and Caterpillar.

Diversification Opportunities for News Corp and Caterpillar

0.25

Correlation Coefficient

News Corp  Caterpillar

Modest diversification

The 3 months correlation between News and Caterpillar is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding News Corp A and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and News Corp 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 News Corp A are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of News Corp i.e., News Corp and Caterpillar go up and down completely randomly.

Pair Corralation between News Corp and Caterpillar

Given the investment horizon of 90 days News Corp is expected to generate 1.06 times less return on investment than Caterpillar. But when comparing it to its historical volatility, News Corp A is 1.15 times less risky than Caterpillar. It trades about 0.1 of its potential returns per unit of risk. Caterpillar is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  24,282  in Caterpillar on January 25, 2024 and sell it today you would earn a total of  12,043  from holding Caterpillar or generate 49.6% return on investment over 90 days.

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

News Corp A  vs.  Caterpillar

News Corp A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days News Corp A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, News Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Caterpillar

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 19 (%) 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.

Pair Trading with News Corp and Caterpillar

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

The idea behind News Corp A and Caterpillar 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.