Correlation Between Caterpillar and Alphabet

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

Diversification Opportunities for Caterpillar and Alphabet

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Caterpillar and Alphabet is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Alphabet Cl A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Cl A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Cl A has no effect on the direction of Caterpillar i.e., Caterpillar and Alphabet go up and down completely randomly.

Pair Corralation between Caterpillar and Alphabet

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Alphabet. In addition to that, Caterpillar is 1.06 times more volatile than Alphabet Cl A. It trades about -0.4 of its total potential returns per unit of risk. Alphabet Cl A is currently generating about -0.3 per unit of volatility. If you would invest  10,942  in Alphabet Cl A on June 30, 2022 and sell it today you would lose (1,192)  from holding Alphabet Cl A or give up 10.89% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Alphabet Cl A

 Performance (%) 
       Timeline  
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

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 latest abnormal performance, the Stock's technical and fundamental indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Alphabet Price Channel

Caterpillar and Alphabet Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Alphabet

The main advantage of trading using opposite Caterpillar and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.
Caterpillar vs. Clearwater Paper Corp
The idea behind Caterpillar and Alphabet Cl A 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.
Alphabet 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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