Correlation Between Caterpillar and 67077MAU2

Can any of the company-specific risk be diversified away by investing in both Caterpillar and 67077MAU2 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 67077MAU2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and NUTRIEN LTD, you can compare the effects of market volatilities on Caterpillar and 67077MAU2 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 67077MAU2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 67077MAU2.

Diversification Opportunities for Caterpillar and 67077MAU2

-0.1

Correlation Coefficient

Caterpillar  67077MAU2

Good diversification

The 3 months correlation between Caterpillar and 67077MAU2 is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and NUTRIEN LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NUTRIEN LTD 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 67077MAU2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NUTRIEN LTD has no effect on the direction of Caterpillar i.e., Caterpillar and 67077MAU2 go up and down completely randomly.

Pair Corralation between Caterpillar and 67077MAU2

Considering the 90-day investment horizon Caterpillar is expected to generate 1.07 times more return on investment than 67077MAU2. However, Caterpillar is 1.07 times more volatile than NUTRIEN LTD. It trades about 0.16 of its potential returns per unit of risk. NUTRIEN LTD is currently generating about 0.11 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  6,709  from holding Caterpillar or generate 19.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.56%
Values	Daily Returns

Caterpillar  vs.  NUTRIEN LTD

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.

NUTRIEN LTD

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NUTRIEN LTD are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, 67077MAU2 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Caterpillar and 67077MAU2

The main advantage of trading using opposite Caterpillar and 67077MAU2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 67077MAU2 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 67077MAU2 will offset losses from the drop in 67077MAU2's long position.

The idea behind Caterpillar and NUTRIEN LTD 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.