Correlation Between American Express and Caterpillar

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

Diversification Opportunities for American Express and Caterpillar

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between American and Caterpillar is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and American Express 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 American Express 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 American Express i.e., American Express and Caterpillar go up and down completely randomly.

Pair Corralation between American Express and Caterpillar

Considering the 90-day investment horizon American Express is expected to under-perform the Caterpillar. In addition to that, American Express is 1.12 times more volatile than Caterpillar. It trades about -0.04 of its total potential returns per unit of risk. Caterpillar is currently generating about -0.04 per unit of volatility. If you would invest  21,322  in Caterpillar on July 5, 2022 and sell it today you would lose (4,199)  from holding Caterpillar or give up 19.69% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

American Express  vs.  Caterpillar

 Performance (%) 
       Timeline  
American Express 
American Performance
0 of 100
Over the last 90 days American Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, American Express is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the insiders.

American Price Channel

Caterpillar 
Caterpillar Performance
0 of 100
Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Caterpillar Price Channel

American Express and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Express and Caterpillar

The main advantage of trading using opposite American Express and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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 American Express 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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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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