Correlation Between Caterpillar and C3 Metals

Can any of the company-specific risk be diversified away by investing in both Caterpillar and C3 Metals 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 Caterpillar and C3 Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and C3 Metals, you can compare the effects of market volatilities on Caterpillar and C3 Metals 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 Caterpillar with a short position of C3 Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and C3 Metals.

Diversification Opportunities for Caterpillar and C3 Metals

0.59

Correlation Coefficient

Caterpillar  C3 Metals

Very weak diversification

The 3 months correlation between Caterpillar and CUAUF is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and C3 Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on C3 Metals and Caterpillar 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 Caterpillar are associated (or correlated) with C3 Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of C3 Metals has no effect on the direction of Caterpillar i.e., Caterpillar and C3 Metals go up and down completely randomly.

Pair Corralation between Caterpillar and C3 Metals

Considering the 90-day investment horizon Caterpillar is expected to generate 0.22 times more return on investment than C3 Metals. However, Caterpillar is 4.56 times less risky than C3 Metals. It trades about 0.15 of its potential returns per unit of risk. C3 Metals is currently generating about -0.05 per unit of risk. If you would invest  33,902  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  6,349  from holding Caterpillar or generate 18.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	68.75%
Values	Daily Returns

Caterpillar  vs.  C3 Metals

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

C3 Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days C3 Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Caterpillar and C3 Metals

The main advantage of trading using opposite Caterpillar and C3 Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, C3 Metals 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 C3 Metals will offset losses from the drop in C3 Metals' long position.

The idea behind Caterpillar and C3 Metals 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.