Correlation Between Caterpillar and Chubb
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Chubb 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 Chubb into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Chubb, you can compare the effects of market volatilities on Caterpillar and Chubb 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 Chubb. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Chubb.
Diversification Opportunities for Caterpillar and Chubb
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Caterpillar and Chubb is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Chubb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chubb 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 Chubb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chubb has no effect on the direction of Caterpillar i.e., Caterpillar and Chubb go up and down completely randomly.
Pair Corralation between Caterpillar and Chubb
Considering the 90-day investment horizon Caterpillar is expected to generate 1.81 times more return on investment than Chubb. However, Caterpillar is 1.81 times more volatile than Chubb. It trades about 0.22 of its potential returns per unit of risk. Chubb is currently generating about 0.11 per unit of risk. If you would invest 22,992 in Caterpillar on January 30, 2024 and sell it today you would earn a total of 11,346 from holding Caterpillar or generate 49.35% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Caterpillar vs. Chubb
Performance |
Timeline |
Caterpillar |
Chubb |
Caterpillar and Chubb Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caterpillar and Chubb
The main advantage of trading using opposite Caterpillar and Chubb positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Chubb 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 Chubb will offset losses from the drop in Chubb's long position.Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. NikolaCorp | Caterpillar vs. PACCAR Inc |
Chubb vs. Cincinnati Financial | Chubb vs. Aflac Incorporated | Chubb vs. Dover | Chubb vs. Franklin Resources |
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 the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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