Correlation Between PACCAR and CNH Industrial

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

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

Diversification Opportunities for PACCAR and CNH Industrial

-0.07

Correlation Coefficient

PACCAR  CNH Industrial

Good diversification

The 3 months correlation between PACCAR and CNH is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and CNH Industrial NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNH Industrial NV and PACCAR 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 PACCAR Inc are associated (or correlated) with CNH Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNH Industrial NV has no effect on the direction of PACCAR i.e., PACCAR and CNH Industrial go up and down completely randomly.

Pair Corralation between PACCAR and CNH Industrial

If you would invest  9,545  in PACCAR Inc on September 16, 2024 and sell it today you would earn a total of  1,756  from holding PACCAR Inc or generate 18.4% return on investment over 90 days.

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

PACCAR Inc  vs.  CNH Industrial NV

PACCAR Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with PACCAR and CNH Industrial

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

The idea behind PACCAR Inc and CNH Industrial NV 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.