Correlation Between Caterpillar and LOWES

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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

-0.46
  Correlation Coefficient

Very good diversification

The 3 months correlation between Caterpillar and LOWES is -0.46. 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 under-perform the LOWES. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.95 times less risky than LOWES. The stock trades about -0.07 of its potential returns per unit of risk. The LOWES PANIES INC is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  8,727  in LOWES PANIES INC on September 12, 2024 and sell it today you would lose (188.00) from holding LOWES PANIES INC or give up 2.15% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Caterpillar  vs.  LOWES PANIES INC

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
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.
LOWES PANIES INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 current stock price disturbance, may contribute to short-term losses for the investors.

Caterpillar and LOWES Volatility Contrast

   Predicted Return Density   
       Returns  

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.
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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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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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