Correlation Between ATT and Caterpillar

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

Diversification Opportunities for ATT and Caterpillar

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between ATT and Caterpillar is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and ATT 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 ATT Inc 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 ATT i.e., ATT and Caterpillar go up and down completely randomly.

Pair Corralation between ATT and Caterpillar

Taking into account the 90-day investment horizon ATT is expected to generate 61.4 times less return on investment than Caterpillar. But when comparing it to its historical volatility, ATT Inc is 1.3 times less risky than Caterpillar. It trades about 0.0 of its potential returns per unit of risk. Caterpillar is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  13,165  in Caterpillar on May 12, 2022 and sell it today you would earn a total of  5,907  from holding Caterpillar or generate 44.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ATT Inc  vs.  Caterpillar

 Performance (%) 
       Timeline  
ATT Inc 
ATT Performance
0 of 100
Over the last 90 days ATT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

ATT 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 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

ATT and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ATT and Caterpillar

The main advantage of trading using opposite ATT and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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.
The idea behind ATT Inc 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.
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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