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

0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alphabet and Caterpillar is 0.69. 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 under-perform the Caterpillar. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet Cl A is 1.19 times less risky than Caterpillar. The stock trades about -0.2 of its potential returns per unit of risk. The Caterpillar is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  18,086  in Caterpillar on July 9, 2022 and sell it today you would lose (381.00)  from holding Caterpillar or give up 2.11% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
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 latest unsteady 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 
Caterpillar Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the 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. Tencent Holdings
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. Amazon Inc
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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