Correlation Between Caterpillar and Caterpillar

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

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

Diversification Opportunities for Caterpillar and Caterpillar

0.98

Correlation Coefficient

Caterpillar  Caterpillar

Almost no diversification

The 3 months correlation between Caterpillar and Caterpillar is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar 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 Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Caterpillar i.e., Caterpillar and Caterpillar go up and down completely randomly.

Pair Corralation between Caterpillar and Caterpillar

Assuming the 90 days trading horizon Caterpillar is expected to generate 1.09 times more return on investment than Caterpillar. However, Caterpillar is 1.09 times more volatile than Caterpillar. It trades about 0.05 of its potential returns per unit of risk. Caterpillar is currently generating about 0.05 per unit of risk. If you would invest  33,270  in Caterpillar on September 23, 2024 and sell it today you would earn a total of  1,830  from holding Caterpillar or generate 5.5% return on investment over 90 days.

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

Caterpillar  vs.  Caterpillar

Caterpillar

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Caterpillar

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Caterpillar is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Caterpillar and Caterpillar

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

The idea behind Caterpillar and Caterpillar 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.