Correlation Between Caterpillar and Church Dwight

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

Diversification Opportunities for Caterpillar and Church Dwight

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Caterpillar and Church is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Church Dwight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Church Dwight 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 Church Dwight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Church Dwight has no effect on the direction of Caterpillar i.e., Caterpillar and Church Dwight go up and down completely randomly.

Pair Corralation between Caterpillar and Church Dwight

Considering the 90-day investment horizon Caterpillar is expected to generate 1.51 times more return on investment than Church Dwight. However, Caterpillar is 1.51 times more volatile than Church Dwight. It trades about -0.1 of its potential returns per unit of risk. Church Dwight is currently generating about -0.3 per unit of risk. If you would invest  18,066  in Caterpillar on July 6, 2022 and sell it today you would lose (943.00)  from holding Caterpillar or give up 5.22% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Church Dwight

 Performance (%) 
       Timeline  
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

Church Dwight 
Church Performance
0 of 100
Over the last 90 days Church Dwight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in November 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Church Price Channel

Caterpillar and Church Dwight Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Church Dwight

The main advantage of trading using opposite Caterpillar and Church Dwight positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Church Dwight 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 Church Dwight will offset losses from the drop in Church Dwight's long position.
Caterpillar vs. Amazon Inc
The idea behind Caterpillar and Church Dwight 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.
Church Dwight vs. Amazon Inc
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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