Correlation Between Caterpillar and NikolaCorp
Can any of the company-specific risk be diversified away by investing in both Caterpillar and NikolaCorp 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 NikolaCorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and NikolaCorp, you can compare the effects of market volatilities on Caterpillar and NikolaCorp 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 NikolaCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and NikolaCorp.
Diversification Opportunities for Caterpillar and NikolaCorp
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Caterpillar and NikolaCorp is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and NikolaCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NikolaCorp 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 NikolaCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NikolaCorp has no effect on the direction of Caterpillar i.e., Caterpillar and NikolaCorp go up and down completely randomly.
Pair Corralation between Caterpillar and NikolaCorp
Considering the 90-day investment horizon Caterpillar is expected to generate 0.31 times more return on investment than NikolaCorp. However, Caterpillar is 3.24 times less risky than NikolaCorp. It trades about -0.19 of its potential returns per unit of risk. NikolaCorp is currently generating about -0.2 per unit of risk. If you would invest 36,845 in Caterpillar on February 4, 2024 and sell it today you would lose (3,170) from holding Caterpillar or give up 8.6% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 95.65% |
Values | Daily Returns |
Caterpillar vs. NikolaCorp
Performance |
Timeline |
Caterpillar |
NikolaCorp |
Caterpillar and NikolaCorp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caterpillar and NikolaCorp
The main advantage of trading using opposite Caterpillar and NikolaCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, NikolaCorp 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 NikolaCorp will offset losses from the drop in NikolaCorp's long position.Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. Deere Company | Caterpillar vs. Lindsay |
NikolaCorp vs. AGCO Corporation | NikolaCorp vs. CNH Industrial NV | NikolaCorp vs. Deere Company | NikolaCorp vs. Lindsay |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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