Correlation Between Titan International and Caterpillar

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Can any of the company-specific risk be diversified away by investing in both Titan International 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 Titan International and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Titan International and Caterpillar, you can compare the effects of market volatilities on Titan International 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 Titan International with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Titan International and Caterpillar.

Diversification Opportunities for Titan International and Caterpillar

-0.84
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Titan and Caterpillar is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Titan International and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Titan International 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 Titan International 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 Titan International i.e., Titan International and Caterpillar go up and down completely randomly.

Pair Corralation between Titan International and Caterpillar

Considering the 90-day investment horizon Titan International is expected to generate 6.47 times less return on investment than Caterpillar. In addition to that, Titan International is 1.82 times more volatile than Caterpillar. It trades about 0.01 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.07 per unit of volatility. If you would invest  20,588  in Caterpillar on January 17, 2024 and sell it today you would earn a total of  15,400  from holding Caterpillar or generate 74.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Titan International  vs.  Caterpillar

 Performance 
       Timeline  
Titan International 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Titan International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.
Caterpillar 

Risk-Adjusted Performance

24 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 24 (%) 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.

Titan International and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Titan International and Caterpillar

The main advantage of trading using opposite Titan International and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Titan International 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 Titan International 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.
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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