Correlation Between Caterpillar and VictoryShares Small

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

By analyzing existing cross correlation between Caterpillar and VictoryShares Small Cap, you can compare the effects of market volatilities on Caterpillar and VictoryShares Small 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 VictoryShares Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and VictoryShares Small.

Diversification Opportunities for Caterpillar and VictoryShares Small

0.9

Correlation Coefficient

Caterpillar  VictoryShares Small

Almost no diversification

The 3 months correlation between Caterpillar and VictoryShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and VictoryShares Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares Small Cap 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 VictoryShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares Small Cap has no effect on the direction of Caterpillar i.e., Caterpillar and VictoryShares Small go up and down completely randomly.

Pair Corralation between Caterpillar and VictoryShares Small

Considering the 90-day investment horizon Caterpillar is expected to generate 1.2 times more return on investment than VictoryShares Small. However, Caterpillar is 1.2 times more volatile than VictoryShares Small Cap. It trades about 0.39 of its potential returns per unit of risk. VictoryShares Small Cap is currently generating about 0.07 per unit of risk. If you would invest  32,250  in Caterpillar on May 2, 2025 and sell it today you would earn a total of  11,162  from holding Caterpillar or generate 34.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  VictoryShares Small Cap

Caterpillar

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

VictoryShares Small Cap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VictoryShares Small Cap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, VictoryShares Small is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and VictoryShares Small

The main advantage of trading using opposite Caterpillar and VictoryShares Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, VictoryShares Small 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 VictoryShares Small will offset losses from the drop in VictoryShares Small's long position.

The idea behind Caterpillar and VictoryShares Small Cap 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.