Correlation Between Caterpillar and Walmart

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

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

Diversification Opportunities for Caterpillar and Walmart

0.28

Correlation Coefficient

Caterpillar  Walmart

Modest diversification

The 3 months correlation between Caterpillar and Walmart is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Caterpillar i.e., Caterpillar and Walmart go up and down completely randomly.

Pair Corralation between Caterpillar and Walmart

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Walmart. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.03 times less risky than Walmart. The stock trades about -0.08 of its potential returns per unit of risk. The Walmart is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  9,032  in Walmart on December 30, 2024 and sell it today you would lose (517.00) from holding Walmart or give up 5.72% of portfolio value over 90 days.

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

Caterpillar  vs.  Walmart

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.

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Walmart is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Caterpillar and Walmart

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

The idea behind Caterpillar and Walmart 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.