Correlation Between PACCAR and Caterpillar
Can any of the company-specific risk be diversified away by investing in both PACCAR and Caterpillar 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 PACCAR and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and Caterpillar, you can compare the effects of market volatilities on PACCAR and Caterpillar 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 PACCAR with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and Caterpillar.
Diversification Opportunities for PACCAR and Caterpillar
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PACCAR and Caterpillar is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and PACCAR 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 PACCAR Inc are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of PACCAR i.e., PACCAR and Caterpillar go up and down completely randomly.
Pair Corralation between PACCAR and Caterpillar
Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.93 times more return on investment than Caterpillar. However, PACCAR Inc is 1.07 times less risky than Caterpillar. It trades about 0.19 of its potential returns per unit of risk. Caterpillar is currently generating about 0.08 per unit of risk. If you would invest 10,680 in PACCAR Inc on August 28, 2024 and sell it today you would earn a total of 974.00 from holding PACCAR Inc or generate 9.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PACCAR Inc vs. Caterpillar
Performance |
| Timeline |
| PACCAR Inc |
| Caterpillar |
PACCAR and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PACCAR and Caterpillar
The main advantage of trading using opposite PACCAR and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.The idea behind PACCAR Inc and Caterpillar 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.| Caterpillar vs. Lion Electric Corp | Caterpillar vs. Xos Inc | Caterpillar vs. Hydrofarm Holdings Group | Caterpillar 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 CEOs Directory module to screen CEOs from public companies around the world.
Other Complementary Tools
| Share Portfolio Track or share privately all of your investments from the convenience of any device | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon |