Correlation Between SPDR Portfolio and Caterpillar

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

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

Diversification Opportunities for SPDR Portfolio and Caterpillar

0.95

Correlation Coefficient

SPDR Portfolio  Caterpillar

Almost no diversification

The 3 months correlation between SPDR and Caterpillar is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and SPDR Portfolio 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 SPDR Portfolio SP 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 SPDR Portfolio i.e., SPDR Portfolio and Caterpillar go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Caterpillar

Given the investment horizon of 90 days SPDR Portfolio SP is expected to under-perform the Caterpillar. But the etf apears to be less risky and, when comparing its historical volatility, SPDR Portfolio SP is 1.96 times less risky than Caterpillar. The etf trades about -0.11 of its potential returns per unit of risk. The Caterpillar is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  35,190  in Caterpillar on January 16, 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

SPDR Portfolio SP  vs.  Caterpillar

SPDR Portfolio SP

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Caterpillar

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 22 (%) 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 SPDR Portfolio and Caterpillar

The main advantage of trading using opposite SPDR Portfolio and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio 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 SPDR Portfolio SP 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.