Correlation Between FMC and Caterpillar

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

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

Diversification Opportunities for FMC and Caterpillar

-0.19

Correlation Coefficient

FMC  Caterpillar

Good diversification

The 3 months correlation between FMC and Caterpillar is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and FMC 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 FMC Corporation 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 FMC i.e., FMC and Caterpillar go up and down completely randomly.

Pair Corralation between FMC and Caterpillar

Considering the 90-day investment horizon FMC is expected to generate 47.43 times less return on investment than Caterpillar. In addition to that, FMC is 1.49 times more volatile than Caterpillar. It trades about 0.0 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.09 per unit of volatility. If you would invest  23,591  in Caterpillar on October 5, 2024 and sell it today you would earn a total of  11,659  from holding Caterpillar or generate 49.42% return on investment over 90 days.

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

FMC Corp.  vs.  Caterpillar

FMC Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FMC Corporation 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 primary indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Caterpillar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Caterpillar is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with FMC and Caterpillar

The main advantage of trading using opposite FMC and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FMC 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 FMC Corporation 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.