Correlation Between Xtrackers LevDAX and Caterpillar

Can any of the company-specific risk be diversified away by investing in both Xtrackers LevDAX 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 Xtrackers LevDAX and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xtrackers LevDAX and Caterpillar, you can compare the effects of market volatilities on Xtrackers LevDAX 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 Xtrackers LevDAX with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers LevDAX and Caterpillar.

Diversification Opportunities for Xtrackers LevDAX and Caterpillar

0.77

Correlation Coefficient

Xtrackers LevDAX  Caterpillar

Poor diversification

The 3 months correlation between Xtrackers and Caterpillar is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers LevDAX and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Xtrackers LevDAX 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 Xtrackers LevDAX 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 Xtrackers LevDAX i.e., Xtrackers LevDAX and Caterpillar go up and down completely randomly.

Pair Corralation between Xtrackers LevDAX and Caterpillar

Assuming the 90 days trading horizon Xtrackers LevDAX is expected to generate 1.71 times less return on investment than Caterpillar. But when comparing it to its historical volatility, Xtrackers LevDAX is 1.1 times less risky than Caterpillar. It trades about 0.18 of its potential returns per unit of risk. Caterpillar is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  26,005  in Caterpillar on April 24, 2025 and sell it today you would earn a total of  9,445  from holding Caterpillar or generate 36.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Xtrackers LevDAX  vs.  Caterpillar

Xtrackers LevDAX

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers LevDAX are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Xtrackers LevDAX reported solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Caterpillar reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xtrackers LevDAX and Caterpillar

The main advantage of trading using opposite Xtrackers LevDAX and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers LevDAX 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 Xtrackers LevDAX 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 the Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.