Correlation Between Caterpillar and Cummins
Can any of the company-specific risk be diversified away by investing in both Caterpillar and Cummins 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 Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Cummins, you can compare the effects of market volatilities on Caterpillar and Cummins 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 Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Cummins.
Diversification Opportunities for Caterpillar and Cummins
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Caterpillar and Cummins is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins 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 Cummins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cummins has no effect on the direction of Caterpillar i.e., Caterpillar and Cummins go up and down completely randomly.
Pair Corralation between Caterpillar and Cummins
Considering the 90-day investment horizon Caterpillar is expected to generate 1.21 times more return on investment than Cummins. However, Caterpillar is 1.21 times more volatile than Cummins. It trades about 0.07 of its potential returns per unit of risk. Cummins is currently generating about 0.06 per unit of risk. If you would invest 19,777 in Caterpillar on January 27, 2024 and sell it today you would earn a total of 14,023 from holding Caterpillar or generate 70.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Caterpillar vs. Cummins
Performance |
| Timeline |
| Caterpillar |
| Cummins |
Caterpillar and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Cummins
The main advantage of trading using opposite Caterpillar and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Cummins 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 Cummins will offset losses from the drop in Cummins' long position.| Caterpillar vs. AGCO Corporation | Caterpillar vs. CNH Industrial NV | Caterpillar vs. Deere Company | Caterpillar vs. Lindsay |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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