Correlation Between T-Mobile and Caterpillar

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

Diversification Opportunities for T-Mobile and Caterpillar

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between T-Mobile and Caterpillar is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding T-Mobile US and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and T-Mobile 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 T-Mobile US 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 T-Mobile i.e., T-Mobile and Caterpillar go up and down completely randomly.

Pair Corralation between T-Mobile and Caterpillar

Given the investment horizon of 90 days T-Mobile US is expected to generate 0.77 times more return on investment than Caterpillar. However, T-Mobile US is 1.31 times less risky than Caterpillar. It trades about 0.0 of its potential returns per unit of risk. Caterpillar is currently generating about -0.01 per unit of risk. If you would invest  14,191  in T-Mobile US on July 8, 2022 and sell it today you would lose (68.00)  from holding T-Mobile US or give up 0.48% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.65%
ValuesDaily Returns

T-Mobile US  vs.  Caterpillar

 Performance (%) 
       Timeline  
T-Mobile US 
T-Mobile Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in T-Mobile US are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, T-Mobile is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

T-Mobile 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

T-Mobile and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with T-Mobile and Caterpillar

The main advantage of trading using opposite T-Mobile and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T-Mobile 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.
T-Mobile vs. Amazon Inc
The idea behind T-Mobile US 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 CEO Directory module to screen CEOs from public companies around the world.

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