Correlation Between Boeing and Caterpillar

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

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

Diversification Opportunities for Boeing and Caterpillar

-0.37

Correlation Coefficient

Boeing  Caterpillar

Very good diversification

The 3 months correlation between Boeing and Caterpillar is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Boeing 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 The Boeing 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 Boeing i.e., Boeing and Caterpillar go up and down completely randomly.

Pair Corralation between Boeing and Caterpillar

Allowing for the 90-day total investment horizon Boeing is expected to generate 7.1 times less return on investment than Caterpillar. In addition to that, Boeing is 1.07 times more volatile than Caterpillar. It trades about 0.02 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.12 per unit of volatility. If you would invest  33,836  in Caterpillar on September 12, 2024 and sell it today you would earn a total of  5,003  from holding Caterpillar or generate 14.79% return on investment over 90 days.

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

The Boeing  vs.  Caterpillar

Boeing

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Boeing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Caterpillar

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boeing and Caterpillar

The main advantage of trading using opposite Boeing and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing 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 The Boeing 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.