Correlation Between Caterpillar and Daimler Truck

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

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

Diversification Opportunities for Caterpillar and Daimler Truck

-0.57

Correlation Coefficient

Caterpillar  Daimler Truck

Excellent diversification

The 3 months correlation between Caterpillar and Daimler is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Daimler Truck Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daimler Truck Holding 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 Daimler Truck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daimler Truck Holding has no effect on the direction of Caterpillar i.e., Caterpillar and Daimler Truck go up and down completely randomly.

Pair Corralation between Caterpillar and Daimler Truck

Assuming the 90 days trading horizon Caterpillar is expected to generate 4.04 times less return on investment than Daimler Truck. But when comparing it to its historical volatility, Caterpillar is 1.21 times less risky than Daimler Truck. It trades about 0.04 of its potential returns per unit of risk. Daimler Truck Holding is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,973  in Daimler Truck Holding on December 10, 2024 and sell it today you would earn a total of  1,331  from holding Daimler Truck Holding or generate 44.77% return on investment over 90 days.

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

Caterpillar  vs.  Daimler Truck Holding

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 fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Daimler Truck Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Daimler Truck unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Daimler Truck

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

The idea behind Caterpillar and Daimler Truck Holding 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.