Correlation Between Caterpillar and Nikola Corp
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Nikola Corp 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 Nikola Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Nikola Corp, you can compare the effects of market volatilities on Caterpillar and Nikola Corp 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 Nikola Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Nikola Corp.
Diversification Opportunities for Caterpillar and Nikola Corp
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Caterpillar and Nikola is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Nikola Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nikola Corp 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 Nikola Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nikola Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Nikola Corp go up and down completely randomly.
Pair Corralation between Caterpillar and Nikola Corp
Considering the 90-day investment horizon Caterpillar is expected to generate 0.25 times more return on investment than Nikola Corp. However, Caterpillar is 4.02 times less risky than Nikola Corp. It trades about 0.05 of its potential returns per unit of risk. Nikola Corp is currently generating about -0.16 per unit of risk. If you would invest 31,879 in Caterpillar on November 3, 2024 and sell it today you would earn a total of 5,265 from holding Caterpillar or generate 16.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Nikola Corp
Performance |
| Timeline |
| Caterpillar |
| Nikola Corp |
Caterpillar and Nikola Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Nikola Corp
The main advantage of trading using opposite Caterpillar and Nikola Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Nikola Corp 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 Nikola Corp will offset losses from the drop in Nikola Corp's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Nikola Corp vs. Xos Inc | Nikola Corp vs. Hydrofarm Holdings Group | Nikola Corp vs. Caterpillar | Nikola Corp vs. AGCO Corporation |
Check out your portfolio center.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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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