Correlation Between Procter Gamble and Caterpillar

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

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

Diversification Opportunities for Procter Gamble and Caterpillar

-0.48

Correlation Coefficient

Procter Gamble  Caterpillar

Very good diversification

The 3 months correlation between Procter and Caterpillar is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Procter Gamble 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 Procter Gamble 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 Procter Gamble i.e., Procter Gamble and Caterpillar go up and down completely randomly.

Pair Corralation between Procter Gamble and Caterpillar

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 0.77 times more return on investment than Caterpillar. However, Procter Gamble is 1.31 times less risky than Caterpillar. It trades about 0.02 of its potential returns per unit of risk. Caterpillar is currently generating about -0.08 per unit of risk. If you would invest  16,608  in Procter Gamble on December 30, 2024 and sell it today you would earn a total of  195.00  from holding Procter Gamble or generate 1.17% return on investment over 90 days.

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

Procter Gamble  vs.  Caterpillar

Procter Gamble

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Procter Gamble and Caterpillar

The main advantage of trading using opposite Procter Gamble and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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 Procter Gamble 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.