Correlation Between Vanguard Long-Term and Caterpillar

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

Diversification Opportunities for Vanguard Long-Term and Caterpillar

0.01
  Correlation Coefficient

Significant diversification

The 3 months correlation between Vanguard and Caterpillar is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Long-Term Bond and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Vanguard Long-Term 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 Long-Term Bond 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 Long-Term i.e., Vanguard Long-Term and Caterpillar go up and down completely randomly.

Pair Corralation between Vanguard Long-Term and Caterpillar

Considering the 90-day investment horizon Vanguard Long-Term Bond is expected to under-perform the Caterpillar. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Long-Term Bond is 2.12 times less risky than Caterpillar. The etf trades about -0.06 of its potential returns per unit of risk. The Caterpillar is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17,147  in Caterpillar on September 8, 2022 and sell it today you would earn a total of  5,751  from holding Caterpillar or generate 33.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Vanguard Long-Term Bond  vs.  Caterpillar

 Performance (%) 
       Timeline  
Vanguard Long-Term Bond 
Vanguard Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Long-Term Bond are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable essential indicators, Vanguard Long-Term is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vanguard Price Channel

Caterpillar 
Caterpillar Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 13 (%) 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

Vanguard Long-Term and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Long-Term and Caterpillar

The main advantage of trading using opposite Vanguard Long-Term and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Long-Term 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 Vanguard Long-Term Bond 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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