Correlation Between Caterpillar and Centre Global

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

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

Diversification Opportunities for Caterpillar and Centre Global

0.66

Correlation Coefficient

Caterpillar  Centre Global

Poor diversification

The 3 months correlation between Caterpillar and Centre is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Centre Global Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centre Global Infras 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 Centre Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centre Global Infras has no effect on the direction of Caterpillar i.e., Caterpillar and Centre Global go up and down completely randomly.

Pair Corralation between Caterpillar and Centre Global

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Centre Global. In addition to that, Caterpillar is 1.79 times more volatile than Centre Global Infrastructure. It trades about -0.06 of its total potential returns per unit of risk. Centre Global Infrastructure is currently generating about -0.06 per unit of volatility. If you would invest  1,217  in Centre Global Infrastructure on September 14, 2024 and sell it today you would lose (11.00) from holding Centre Global Infrastructure or give up 0.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Caterpillar  vs.  Centre Global Infrastructure

Caterpillar

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Centre Global Infras

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Centre Global Infrastructure are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Centre Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and Centre Global

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

The idea behind Caterpillar and Centre Global Infrastructure 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.