Correlation Between Pfizer and Caterpillar

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

Diversification Opportunities for Pfizer and Caterpillar

-0.41
  Correlation Coefficient

Very good diversification

The 3 months correlation between Pfizer and Caterpillar is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Pfizer 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 Pfizer Inc 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 Pfizer i.e., Pfizer and Caterpillar go up and down completely randomly.

Pair Corralation between Pfizer and Caterpillar

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the Caterpillar. But the stock apears to be less risky and, when comparing its historical volatility, Pfizer Inc is 1.26 times less risky than Caterpillar. The stock trades about -0.07 of its potential returns per unit of risk. The Caterpillar is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  20,588  in Caterpillar on January 17, 2024 and sell it today you would earn a total of  15,803  from holding Caterpillar or generate 76.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Pfizer Inc  vs.  Caterpillar

 Performance 
       Timeline  
Pfizer Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Pfizer Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
Caterpillar 

Risk-Adjusted Performance

26 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pfizer and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pfizer and Caterpillar

The main advantage of trading using opposite Pfizer and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer 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.
The idea behind Pfizer Inc and Caterpillar 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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