Correlation Between Terex and Caterpillar
Can any of the company-specific risk be diversified away by investing in both Terex 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 Terex and Caterpillar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Terex and Caterpillar, you can compare the effects of market volatilities on Terex 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 Terex with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Terex and Caterpillar.
Diversification Opportunities for Terex and Caterpillar
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Terex and Caterpillar is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Terex and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Terex 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 Terex 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 Terex i.e., Terex and Caterpillar go up and down completely randomly.
Pair Corralation between Terex and Caterpillar
Considering the 90-day investment horizon Terex is expected to under-perform the Caterpillar. In addition to that, Terex is 1.37 times more volatile than Caterpillar. It trades about -0.02 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.1 per unit of volatility. If you would invest 34,990 in Caterpillar on August 24, 2024 and sell it today you would earn a total of 3,969 from holding Caterpillar or generate 11.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Terex vs. Caterpillar
Performance |
| Timeline |
| Terex |
| Caterpillar |
Terex and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Terex and Caterpillar
The main advantage of trading using opposite Terex and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Terex 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.| Terex vs. Oshkosh | Terex vs. Astec Industries | Terex vs. Hyster Yale Materials Handling | Terex vs. Manitex International |
| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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