Correlation Between Nikola Corp and Caterpillar

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

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

Diversification Opportunities for Nikola Corp and Caterpillar

0.69

Correlation Coefficient

Nikola Corp  Caterpillar

Poor diversification

The 3 months correlation between Nikola and Caterpillar is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Nikola Corp and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Nikola Corp 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 Nikola Corp 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 Nikola Corp i.e., Nikola Corp and Caterpillar go up and down completely randomly.

Pair Corralation between Nikola Corp and Caterpillar

Given the investment horizon of 90 days Nikola Corp is expected to under-perform the Caterpillar. In addition to that, Nikola Corp is 14.36 times more volatile than Caterpillar. It trades about -0.01 of its total potential returns per unit of risk. Caterpillar is currently generating about -0.08 per unit of volatility. If you would invest  36,168  in Caterpillar on December 30, 2024 and sell it today you would lose (3,199) from holding Caterpillar or give up 8.84% of portfolio value over 90 days.

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

Nikola Corp  vs.  Caterpillar

Nikola Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nikola Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.

Pair Trading with Nikola Corp and Caterpillar

The main advantage of trading using opposite Nikola Corp and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nikola Corp 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 Nikola Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.