Correlation Between Caterpillar and Bell Copper

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

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

Diversification Opportunities for Caterpillar and Bell Copper

0.08

Correlation Coefficient

Caterpillar  Bell Copper

Significant diversification

The 3 months correlation between Caterpillar and Bell is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Bell Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bell Copper 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 Bell Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bell Copper has no effect on the direction of Caterpillar i.e., Caterpillar and Bell Copper go up and down completely randomly.

Pair Corralation between Caterpillar and Bell Copper

Considering the 90-day investment horizon Caterpillar is expected to generate 0.22 times more return on investment than Bell Copper. However, Caterpillar is 4.54 times less risky than Bell Copper. It trades about -0.14 of its potential returns per unit of risk. Bell Copper is currently generating about -0.11 per unit of risk. If you would invest  36,322  in Caterpillar on December 10, 2024 and sell it today you would lose (1,801) from holding Caterpillar or give up 4.96% of portfolio value over 90 days.

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

Caterpillar  vs.  Bell Copper

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.

Bell Copper

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bell Copper has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Bell Copper is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and Bell Copper

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

The idea behind Caterpillar and Bell Copper 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.