Correlation Between Vanguard FTSE and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Vanguard FTSE 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 Vanguard FTSE and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard FTSE All World and Caterpillar, you can compare the effects of market volatilities on Vanguard FTSE 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 Vanguard FTSE with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and Caterpillar.
Diversification Opportunities for Vanguard FTSE and Caterpillar
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Vanguard and Caterpillar is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE All World and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Vanguard FTSE 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 Vanguard FTSE All World 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 Vanguard FTSE i.e., Vanguard FTSE and Caterpillar go up and down completely randomly.
Pair Corralation between Vanguard FTSE and Caterpillar
Considering the 90-day investment horizon Vanguard FTSE is expected to generate 1.72 times less return on investment than Caterpillar. But when comparing it to its historical volatility, Vanguard FTSE All World is 2.41 times less risky than Caterpillar. It trades about 0.19 of its potential returns per unit of risk. Caterpillar is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 31,170 in Caterpillar on February 13, 2024 and sell it today you would earn a total of 4,309 from holding Caterpillar or generate 13.82% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Vanguard FTSE All World vs. Caterpillar
Performance |
Timeline |
Vanguard FTSE All |
Caterpillar |
Vanguard FTSE and Caterpillar Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vanguard FTSE and Caterpillar
The main advantage of trading using opposite Vanguard FTSE and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE 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.Vanguard FTSE vs. iShares ESG Advanced | Vanguard FTSE vs. iShares ESG Advanced | Vanguard FTSE vs. iShares ESG Aware | Vanguard FTSE vs. iShares ESG Aware |
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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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