Correlation Between Caterpillar and Fidelity Total

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

Diversification Opportunities for Caterpillar and Fidelity Total

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between Caterpillar and Fidelity is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Fidelity Total Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Total Market 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 Fidelity Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Total Market has no effect on the direction of Caterpillar i.e., Caterpillar and Fidelity Total go up and down completely randomly.

Pair Corralation between Caterpillar and Fidelity Total

Considering the 90-day investment horizon Caterpillar is expected to generate 0.95 times more return on investment than Fidelity Total. However, Caterpillar is 1.06 times less risky than Fidelity Total. It trades about 0.3 of its potential returns per unit of risk. Fidelity Total Market is currently generating about 0.16 per unit of risk. If you would invest  21,214  in Caterpillar on August 28, 2022 and sell it today you would earn a total of  2,356  from holding Caterpillar or generate 11.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Caterpillar  vs.  Fidelity Total Market

 Performance (%) 
       Timeline  
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 fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar Price Channel

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

Fidelity Price Channel

Caterpillar and Fidelity Total Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Fidelity Total

The main advantage of trading using opposite Caterpillar and Fidelity Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Fidelity Total 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 Fidelity Total will offset losses from the drop in Fidelity Total's long position.
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The idea behind Caterpillar and Fidelity Total Market 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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