Correlation Between American Beacon and Caterpillar

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

Diversification Opportunities for American Beacon and Caterpillar

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between American and Caterpillar is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Mid-Cap and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and American Beacon 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 Beacon Mid-Cap 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 Beacon i.e., American Beacon and Caterpillar go up and down completely randomly.

Pair Corralation between American Beacon and Caterpillar

Assuming the 90 days horizon American Beacon is expected to generate 15.0 times less return on investment than Caterpillar. But when comparing it to its historical volatility, American Beacon Mid-Cap is 1.28 times less risky than Caterpillar. It trades about 0.0 of its potential returns per unit of risk. Caterpillar is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  17,421  in Caterpillar on June 28, 2022 and sell it today you would lose (1,159)  from holding Caterpillar or give up 6.65% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

American Beacon Mid-Cap  vs.  Caterpillar

 Performance (%) 
       Timeline  
American Beacon Mid-Cap 
American Performance
0 of 100
Over the last 90 days American Beacon Mid-Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Beacon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Price Channel

Caterpillar 
Caterpillar Performance
0 of 100
Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Caterpillar Price Channel

American Beacon and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Beacon and Caterpillar

The main advantage of trading using opposite American Beacon and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon 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.
American Beacon vs. Alcoa Corp
The idea behind American Beacon Mid-Cap 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.
Caterpillar vs. Clearwater Paper Corp
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 Transaction History module to view history of all your transactions and understand their impact on performance.

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