Correlation Between Caterpillar and LOWES

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

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

Diversification Opportunities for Caterpillar and LOWES

-0.19

Correlation Coefficient

Caterpillar  LOWES

Good diversification

The 3 months correlation between Caterpillar and LOWES is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and LOWES PANIES INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOWES PANIES 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 LOWES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOWES PANIES INC has no effect on the direction of Caterpillar i.e., Caterpillar and LOWES go up and down completely randomly.

Pair Corralation between Caterpillar and LOWES

Considering the 90-day investment horizon Caterpillar is expected to generate 3.19 times more return on investment than LOWES. However, Caterpillar is 3.19 times more volatile than LOWES PANIES INC. It trades about 0.1 of its potential returns per unit of risk. LOWES PANIES INC is currently generating about 0.01 per unit of risk. If you would invest  22,899  in Caterpillar on September 1, 2024 and sell it today you would earn a total of  17,712  from holding Caterpillar or generate 77.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.19%
Values	Daily Returns

Caterpillar  vs.  LOWES PANIES INC

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 unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

LOWES PANIES INC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Caterpillar and LOWES

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

The idea behind Caterpillar and LOWES PANIES 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.