Correlation Between Caterpillar and ERAMET SA

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

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

Diversification Opportunities for Caterpillar and ERAMET SA

0.56

Correlation Coefficient

Caterpillar  ERAMET SA

Very weak diversification

The 3 months correlation between Caterpillar and ERAMET is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and ERAMET SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ERAMET 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 ERAMET SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ERAMET SA has no effect on the direction of Caterpillar i.e., Caterpillar and ERAMET SA go up and down completely randomly.

Pair Corralation between Caterpillar and ERAMET SA

Considering the 90-day investment horizon Caterpillar is expected to under-perform the ERAMET SA. In addition to that, Caterpillar is 1.81 times more volatile than ERAMET SA. It trades about -0.1 of its total potential returns per unit of risk. ERAMET SA is currently generating about 0.16 per unit of volatility. If you would invest  5,360  in ERAMET SA on December 10, 2024 and sell it today you would earn a total of  369.00  from holding ERAMET SA or generate 6.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	76.67%
Values	Daily Returns

Caterpillar  vs.  ERAMET SA

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.

ERAMET SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ERAMET SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ERAMET SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Caterpillar and ERAMET SA

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

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