Correlation Between Te Connectivity and Caterpillar

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

Diversification Opportunities for Te Connectivity and Caterpillar

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between Te Connectivity and Caterpillar is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Te Connectivity and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Te Connectivity 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 Te Connectivity 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 Te Connectivity i.e., Te Connectivity and Caterpillar go up and down completely randomly.

Pair Corralation between Te Connectivity and Caterpillar

Considering the 90-day investment horizon Te Connectivity is expected to generate 1.37 times less return on investment than Caterpillar. In addition to that, Te Connectivity is 1.75 times more volatile than Caterpillar. It trades about 0.09 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.23 per unit of volatility. If you would invest  21,934  in Caterpillar on August 29, 2022 and sell it today you would earn a total of  1,636  from holding Caterpillar or generate 7.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Te Connectivity  vs.  Caterpillar

 Performance (%) 
       Timeline  
Te Connectivity 
Te Connectivity Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Te Connectivity are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady technical and fundamental indicators, Te Connectivity is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Te Connectivity Price Channel

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

Te Connectivity and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Te Connectivity and Caterpillar

The main advantage of trading using opposite Te Connectivity and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Te Connectivity 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 Te Connectivity 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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