Correlation Between Caterpillar and PT Semen

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

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

Diversification Opportunities for Caterpillar and PT Semen

0.4

Correlation Coefficient

Caterpillar  PT Semen

Very weak diversification

The 3 months correlation between Caterpillar and PSGTF is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and PT Semen Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Semen Indonesia 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 PT Semen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Semen Indonesia has no effect on the direction of Caterpillar i.e., Caterpillar and PT Semen go up and down completely randomly.

Pair Corralation between Caterpillar and PT Semen

Considering the 90-day investment horizon Caterpillar is expected to generate 0.31 times more return on investment than PT Semen. However, Caterpillar is 3.2 times less risky than PT Semen. It trades about -0.05 of its potential returns per unit of risk. PT Semen Indonesia is currently generating about -0.16 per unit of risk. If you would invest  36,353  in Caterpillar on December 27, 2024 and sell it today you would lose (2,242) from holding Caterpillar or give up 6.17% of portfolio value over 90 days.

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

Caterpillar  vs.  PT Semen Indonesia

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 comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

PT Semen Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Semen Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Caterpillar and PT Semen

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

The idea behind Caterpillar and PT Semen Indonesia 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.