Correlation Between American Century and Caterpillar

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

Diversification Opportunities for American Century and Caterpillar

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between American and Caterpillar is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding American Century High and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and American Century 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 American Century High 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 American Century i.e., American Century and Caterpillar go up and down completely randomly.

Pair Corralation between American Century and Caterpillar

Assuming the 90 days horizon American Century High is expected to generate 0.45 times more return on investment than Caterpillar. However, American Century High is 2.24 times less risky than Caterpillar. It trades about 0.28 of its potential returns per unit of risk. Caterpillar is currently generating about -0.01 per unit of risk. If you would invest  790.00  in American Century High on September 8, 2022 and sell it today you would earn a total of  29.00  from holding American Century High or generate 3.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

American Century High  vs.  Caterpillar

 Performance (%) 
       Timeline  
American Century High 
American Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Century High are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Century is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

American Price Channel

Caterpillar 
Caterpillar Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar Price Channel

American Century and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Century and Caterpillar

The main advantage of trading using opposite American Century and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Century 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.
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The idea behind American Century High 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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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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