Correlation Between Caterpillar and Atlas Copco

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

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

Diversification Opportunities for Caterpillar and Atlas Copco

-0.5

Correlation Coefficient

Caterpillar  Atlas Copco

Very good diversification

The 3 months correlation between Caterpillar and Atlas is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Atlas Copco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco AB 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 Atlas Copco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlas Copco AB has no effect on the direction of Caterpillar i.e., Caterpillar and Atlas Copco go up and down completely randomly.

Pair Corralation between Caterpillar and Atlas Copco

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Atlas Copco. In addition to that, Caterpillar is 1.79 times more volatile than Atlas Copco AB. It trades about -0.07 of its total potential returns per unit of risk. Atlas Copco AB is currently generating about 0.18 per unit of volatility. If you would invest  1,400  in Atlas Copco AB on December 22, 2024 and sell it today you would earn a total of  141.00  from holding Atlas Copco AB or generate 10.07% return on investment over 90 days.

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

Caterpillar  vs.  Atlas Copco AB

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Atlas Copco AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Atlas Copco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Caterpillar and Atlas Copco

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

The idea behind Caterpillar and Atlas Copco AB 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.