Correlation Between Caterpillar and Principal Diversified
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Principal Diversified 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 Principal Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Principal Diversified Select, you can compare the effects of market volatilities on Caterpillar and Principal Diversified 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 Principal Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Principal Diversified.
Diversification Opportunities for Caterpillar and Principal Diversified
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Caterpillar and Principal is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Principal Diversified Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Diversified 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 Principal Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Diversified has no effect on the direction of Caterpillar i.e., Caterpillar and Principal Diversified go up and down completely randomly.
Pair Corralation between Caterpillar and Principal Diversified
Considering the 90-day investment horizon Caterpillar is expected to generate 7.32 times more return on investment than Principal Diversified. However, Caterpillar is 7.32 times more volatile than Principal Diversified Select. It trades about 0.39 of its potential returns per unit of risk. Principal Diversified Select is currently generating about 0.22 per unit of risk. If you would invest 29,279 in Caterpillar on April 17, 2025 and sell it today you would earn a total of 11,185 from holding Caterpillar or generate 38.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.36% |
| Values | Daily Returns |
Caterpillar vs. Principal Diversified Select
Performance |
| Timeline |
| Caterpillar |
| Principal Diversified |
Caterpillar and Principal Diversified Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Principal Diversified
The main advantage of trading using opposite Caterpillar and Principal Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Principal Diversified 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 Principal Diversified will offset losses from the drop in Principal Diversified's long position.| Caterpillar vs. Deere Company | Caterpillar vs. AGCO Corporation | Caterpillar vs. PACCAR Inc | Caterpillar vs. CNH Industrial NV |
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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 the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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