Correlation Between Vulcan Materials and PACCAR

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

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

Diversification Opportunities for Vulcan Materials and PACCAR

0.55

Correlation Coefficient

Vulcan Materials  PACCAR

Very weak diversification

The 3 months correlation between Vulcan and PACCAR is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc and Vulcan Materials 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 Vulcan Materials are associated (or correlated) with PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Vulcan Materials i.e., Vulcan Materials and PACCAR go up and down completely randomly.

Pair Corralation between Vulcan Materials and PACCAR

Considering the 90-day investment horizon Vulcan Materials is expected to under-perform the PACCAR. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials is 1.05 times less risky than PACCAR. The stock trades about -0.09 of its potential returns per unit of risk. The PACCAR Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,418  in PACCAR Inc on December 19, 2024 and sell it today you would lose (397.00) from holding PACCAR Inc or give up 3.81% of portfolio value over 90 days.

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

Vulcan Materials  vs.  PACCAR Inc

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

PACCAR Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days PACCAR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, PACCAR is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vulcan Materials and PACCAR

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

The idea behind Vulcan Materials and PACCAR Inc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.