Correlation Between Caterpillar and Givaudan

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

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

Diversification Opportunities for Caterpillar and Givaudan

0.38

Correlation Coefficient

Caterpillar  Givaudan

Weak diversification

The 3 months correlation between Caterpillar and Givaudan is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of Caterpillar i.e., Caterpillar and Givaudan go up and down completely randomly.

Pair Corralation between Caterpillar and Givaudan

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Givaudan. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.77 times less risky than Givaudan. The stock trades about -0.16 of its potential returns per unit of risk. The Givaudan SA is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  432,668  in Givaudan SA on December 2, 2024 and sell it today you would lose (12,332) from holding Givaudan SA or give up 2.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Caterpillar  vs.  Givaudan 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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Givaudan SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Givaudan SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Givaudan 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 Givaudan

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

The idea behind Caterpillar and Givaudan 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.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.