Correlation Between Caterpillar and Walmart
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Walmart 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 Walmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Walmart, you can compare the effects of market volatilities on Caterpillar and Walmart 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 Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Walmart.
Diversification Opportunities for Caterpillar and Walmart
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caterpillar and Walmart is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Caterpillar i.e., Caterpillar and Walmart go up and down completely randomly.
Pair Corralation between Caterpillar and Walmart
Considering the 90-day investment horizon Caterpillar is expected to generate 1.39 times more return on investment than Walmart. However, Caterpillar is 1.39 times more volatile than Walmart. It trades about 0.13 of its potential returns per unit of risk. Walmart is currently generating about 0.17 per unit of risk. If you would invest 23,452 in Caterpillar on September 1, 2024 and sell it today you would earn a total of 17,159 from holding Caterpillar or generate 73.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Walmart
Performance |
| Timeline |
| Caterpillar |
| Walmart |
Caterpillar and Walmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Walmart
The main advantage of trading using opposite Caterpillar and Walmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Walmart 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 Walmart will offset losses from the drop in Walmart's long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Walmart vs. Ingles Markets Incorporated | Walmart vs. Sendas Distribuidora SA | Walmart vs. Grocery Outlet Holding | Walmart vs. Ocado Group plc |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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