Correlation Between Caterpillar and PIMCO RAFI
Can any of the company-specific risk be diversified away by investing in both Caterpillar and PIMCO RAFI 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 PIMCO RAFI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and PIMCO RAFI Dynamic, you can compare the effects of market volatilities on Caterpillar and PIMCO RAFI 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 PIMCO RAFI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and PIMCO RAFI.
Diversification Opportunities for Caterpillar and PIMCO RAFI
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and PIMCO is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and PIMCO RAFI Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO RAFI Dynamic 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 PIMCO RAFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO RAFI Dynamic has no effect on the direction of Caterpillar i.e., Caterpillar and PIMCO RAFI go up and down completely randomly.
Pair Corralation between Caterpillar and PIMCO RAFI
Considering the 90-day investment horizon Caterpillar is expected to generate 2.01 times more return on investment than PIMCO RAFI. However, Caterpillar is 2.01 times more volatile than PIMCO RAFI Dynamic. It trades about 0.11 of its potential returns per unit of risk. PIMCO RAFI Dynamic is currently generating about 0.07 per unit of risk. If you would invest 19,211 in Caterpillar on January 19, 2024 and sell it today you would earn a total of 16,621 from holding Caterpillar or generate 86.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. PIMCO RAFI Dynamic
Performance |
| Timeline |
| Caterpillar |
| PIMCO RAFI Dynamic |
Caterpillar and PIMCO RAFI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and PIMCO RAFI
The main advantage of trading using opposite Caterpillar and PIMCO RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, PIMCO RAFI 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 PIMCO RAFI will offset losses from the drop in PIMCO RAFI's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. NikolaCorp | Caterpillar vs. PACCAR Inc |
| PIMCO RAFI vs. PIMCO RAFI Dynamic | PIMCO RAFI vs. PIMCO RAFI Dynamic | PIMCO RAFI vs. JPMorgan Diversified Return | PIMCO RAFI vs. JPMorgan Diversified Return |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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