Correlation Between Walmart and CATERPILLAR

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Can any of the company-specific risk be diversified away by investing in both Walmart 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 Walmart and CATERPILLAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and CATERPILLAR INC, you can compare the effects of market volatilities on Walmart 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 Walmart with a short position of CATERPILLAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and CATERPILLAR.

Diversification Opportunities for Walmart and CATERPILLAR

-0.03
  Correlation Coefficient

Good diversification

The 3 months correlation between Walmart and CATERPILLAR is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and CATERPILLAR INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CATERPILLAR INC and Walmart 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 Walmart 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 INC has no effect on the direction of Walmart i.e., Walmart and CATERPILLAR go up and down completely randomly.

Pair Corralation between Walmart and CATERPILLAR

Considering the 90-day investment horizon Walmart is expected to generate 0.88 times more return on investment than CATERPILLAR. However, Walmart is 1.14 times less risky than CATERPILLAR. It trades about 0.46 of its potential returns per unit of risk. CATERPILLAR INC is currently generating about 0.18 per unit of risk. If you would invest  9,000  in Walmart on November 3, 2024 and sell it today you would earn a total of  816.00  from holding Walmart or generate 9.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Walmart  vs.  CATERPILLAR INC

 Performance 
       Timeline  
Walmart 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal primary indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.
CATERPILLAR INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days CATERPILLAR INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CATERPILLAR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Walmart and CATERPILLAR Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Walmart and CATERPILLAR

The main advantage of trading using opposite Walmart and CATERPILLAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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.
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The idea behind Walmart and CATERPILLAR 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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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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