Correlation Between Caterpillar and Salesforce

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

Diversification Opportunities for Caterpillar and Salesforce

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Caterpillar and Salesforce is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Caterpillar i.e., Caterpillar and Salesforce go up and down completely randomly.

Pair Corralation between Caterpillar and Salesforce

Considering the 90-day investment horizon Caterpillar is expected to generate 1.02 times more return on investment than Salesforce. However, Caterpillar is 1.02 times more volatile than Salesforce. It trades about 0.29 of its potential returns per unit of risk. Salesforce is currently generating about 0.17 per unit of risk. If you would invest  25,558  in Caterpillar on December 1, 2023 and sell it today you would earn a total of  7,398  from holding Caterpillar or generate 28.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Salesforce

 Performance 
       Timeline  
Caterpillar 

Risk-Adjusted Performance

22 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.
Salesforce 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

Caterpillar and Salesforce Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Salesforce

The main advantage of trading using opposite Caterpillar and Salesforce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Salesforce 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 Salesforce will offset losses from the drop in Salesforce's long position.
The idea behind Caterpillar and Salesforce 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.
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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