Correlation Between Caterpillar and Daimler Truck

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

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

Diversification Opportunities for Caterpillar and Daimler Truck

0.46

Correlation Coefficient

Caterpillar  Daimler Truck

Very weak diversification

The 3 months correlation between Caterpillar and Daimler is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Daimler Truck Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daimler Truck Holding 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 Daimler Truck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daimler Truck Holding has no effect on the direction of Caterpillar i.e., Caterpillar and Daimler Truck go up and down completely randomly.

Pair Corralation between Caterpillar and Daimler Truck

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Daimler Truck. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.61 times less risky than Daimler Truck. The stock trades about -0.03 of its potential returns per unit of risk. The Daimler Truck Holding is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,933  in Daimler Truck Holding on September 16, 2024 and sell it today you would earn a total of  7.00  from holding Daimler Truck Holding or generate 0.36% return on investment over 90 days.

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

Caterpillar  vs.  Daimler Truck Holding

Caterpillar

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Daimler Truck Holding

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Daimler Truck showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Daimler Truck

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

The idea behind Caterpillar and Daimler Truck Holding 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.