Correlation Between Alphabet and Caterpillar

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

Diversification Opportunities for Alphabet and Caterpillar

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Alphabet and Caterpillar is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Cl A and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Alphabet 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 Alphabet Cl A 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 Alphabet i.e., Alphabet and Caterpillar go up and down completely randomly.

Pair Corralation between Alphabet and Caterpillar

Assuming the 90 days horizon Alphabet Cl A is expected to generate 0.94 times more return on investment than Caterpillar. However, Alphabet Cl A is 1.06 times less risky than Caterpillar. It trades about -0.29 of its potential returns per unit of risk. Caterpillar is currently generating about -0.39 per unit of risk. If you would invest  11,034  in Alphabet Cl A on June 27, 2022 and sell it today you would lose (1,160)  from holding Alphabet Cl A or give up 10.51% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Alphabet Cl A  vs.  Caterpillar

 Performance (%) 
       Timeline  
Alphabet Cl A 
Alphabet Performance
0 of 100
Over the last 90 days Alphabet Cl A has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively steady which may send shares a bit higher in October 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Alphabet 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 unsteady 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

Alphabet and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alphabet and Caterpillar

The main advantage of trading using opposite Alphabet and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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.
Alphabet vs. Industrias Bachoco SA
The idea behind Alphabet Cl A 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. BUSHVELD MINERALS LTD
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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