Correlation Between Caterpillar and Columbus McKinnon

Can any of the company-specific risk be diversified away by investing in both Caterpillar and Columbus McKinnon 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 Columbus McKinnon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and Columbus McKinnon, you can compare the effects of market volatilities on Caterpillar and Columbus McKinnon 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 Columbus McKinnon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Columbus McKinnon.

Diversification Opportunities for Caterpillar and Columbus McKinnon

0.67

Correlation Coefficient

Caterpillar  Columbus McKinnon

Poor diversification

The 3 months correlation between Caterpillar and Columbus is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Columbus McKinnon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbus McKinnon 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 Columbus McKinnon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbus McKinnon has no effect on the direction of Caterpillar i.e., Caterpillar and Columbus McKinnon go up and down completely randomly.

Pair Corralation between Caterpillar and Columbus McKinnon

Considering the 90-day investment horizon Caterpillar is expected to generate 0.96 times more return on investment than Columbus McKinnon. However, Caterpillar is 1.05 times less risky than Columbus McKinnon. It trades about 0.09 of its potential returns per unit of risk. Columbus McKinnon is currently generating about -0.13 per unit of risk. If you would invest  35,510  in Caterpillar on January 26, 2024 and sell it today you would earn a total of  842.00  from holding Caterpillar or generate 2.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  Columbus McKinnon

Caterpillar

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Columbus McKinnon

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Columbus McKinnon are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Columbus McKinnon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Caterpillar and Columbus McKinnon

The main advantage of trading using opposite Caterpillar and Columbus McKinnon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Columbus McKinnon 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 Columbus McKinnon will offset losses from the drop in Columbus McKinnon's long position.

The idea behind Caterpillar and Columbus McKinnon 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 Global Correlations module to find global opportunities by holding instruments from different markets.