Correlation Between Caterpillar and Buhler Industries

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

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

Diversification Opportunities for Caterpillar and Buhler Industries

0.0

Correlation Coefficient

Caterpillar  Buhler Industries

Pay attention - limited upside

The 3 months correlation between Caterpillar and Buhler is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Buhler Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buhler Industries 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 Buhler Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buhler Industries has no effect on the direction of Caterpillar i.e., Caterpillar and Buhler Industries go up and down completely randomly.

Pair Corralation between Caterpillar and Buhler Industries

If you would invest  34,407  in Caterpillar on September 13, 2024 and sell it today you would earn a total of  4,432  from holding Caterpillar or generate 12.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Caterpillar  vs.  Buhler Industries

Caterpillar

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Buhler Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Caterpillar and Buhler Industries

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

The idea behind Caterpillar and Buhler Industries 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 Stocks Directory module to find actively traded stocks across global markets.