Correlation Between Caterpillar and AMGEN

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

By analyzing existing cross correlation between Caterpillar and AMGEN INC, you can compare the effects of market volatilities on Caterpillar and AMGEN 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 AMGEN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and AMGEN.

Diversification Opportunities for Caterpillar and AMGEN

-0.54

Correlation Coefficient

Caterpillar  AMGEN

Excellent diversification

The 3 months correlation between Caterpillar and AMGEN is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and AMGEN INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMGEN INC 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 AMGEN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMGEN INC has no effect on the direction of Caterpillar i.e., Caterpillar and AMGEN go up and down completely randomly.

Pair Corralation between Caterpillar and AMGEN

Considering the 90-day investment horizon Caterpillar is expected to generate 1.49 times more return on investment than AMGEN. However, Caterpillar is 1.49 times more volatile than AMGEN INC. It trades about 0.12 of its potential returns per unit of risk. AMGEN INC is currently generating about -0.04 per unit of risk. If you would invest  33,836  in Caterpillar on September 12, 2024 and sell it today you would earn a total of  5,051  from holding Caterpillar or generate 14.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Caterpillar  vs.  AMGEN INC

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.

AMGEN INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AMGEN INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AMGEN is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and AMGEN

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

The idea behind Caterpillar and AMGEN 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.