Correlation Between CNH Industrial and Caterpillar

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

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

Diversification Opportunities for CNH Industrial and Caterpillar

-0.1

Correlation Coefficient

CNH Industrial  Caterpillar

Good diversification

The 3 months correlation between CNH and Caterpillar is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and CNH Industrial 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 CNH Industrial NV 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 CNH Industrial i.e., CNH Industrial and Caterpillar go up and down completely randomly.

Pair Corralation between CNH Industrial and Caterpillar

If you would invest  34,671  in Caterpillar on September 16, 2024 and sell it today you would earn a total of  3,380  from holding Caterpillar or generate 9.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.54%
Values	Daily Returns

CNH Industrial NV  vs.  Caterpillar

CNH Industrial NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNH Industrial NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, CNH Industrial is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Caterpillar

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CNH Industrial and Caterpillar

The main advantage of trading using opposite CNH Industrial and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNH Industrial 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 CNH Industrial NV 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.