Correlation Between Caterpillar and Air Liquide

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

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

Diversification Opportunities for Caterpillar and Air Liquide

-0.36

Correlation Coefficient

Caterpillar  Air Liquide

Very good diversification

The 3 months correlation between Caterpillar and Air is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Air Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Liquide SA 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 Air Liquide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Liquide SA has no effect on the direction of Caterpillar i.e., Caterpillar and Air Liquide go up and down completely randomly.

Pair Corralation between Caterpillar and Air Liquide

Considering the 90-day investment horizon Caterpillar is expected to generate 1.21 times more return on investment than Air Liquide. However, Caterpillar is 1.21 times more volatile than Air Liquide SA. It trades about 0.1 of its potential returns per unit of risk. Air Liquide SA is currently generating about -0.09 per unit of risk. If you would invest  32,883  in Caterpillar on September 1, 2024 and sell it today you would earn a total of  7,728  from holding Caterpillar or generate 23.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  Air Liquide SA

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Air Liquide SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air Liquide SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Caterpillar and Air Liquide

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

The idea behind Caterpillar and Air Liquide SA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.