Correlation Between Caterpillar and Dupont Denemours

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

Diversification Opportunities for Caterpillar and Dupont Denemours

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Caterpillar and Dupont is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Dupont Denemours in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dupont Denemours 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 Dupont Denemours. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dupont Denemours has no effect on the direction of Caterpillar i.e., Caterpillar and Dupont Denemours go up and down completely randomly.

Pair Corralation between Caterpillar and Dupont Denemours

Considering the 90-day investment horizon Caterpillar is expected to generate 0.96 times more return on investment than Dupont Denemours. However, Caterpillar is 1.04 times less risky than Dupont Denemours. It trades about 0.05 of its potential returns per unit of risk. Dupont Denemours is currently generating about 0.02 per unit of risk. If you would invest  13,628  in Caterpillar on May 21, 2022 and sell it today you would earn a total of  5,942  from holding Caterpillar or generate 43.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Dupont Denemours

 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

Dupont Denemours 
Dupont Performance
0 of 100
Over the last 90 days Dupont Denemours has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Dupont Denemours is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Dupont Price Channel

Caterpillar and Dupont Denemours Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Dupont Denemours

The main advantage of trading using opposite Caterpillar and Dupont Denemours positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Dupont Denemours 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 Dupont Denemours will offset losses from the drop in Dupont Denemours' long position.
The idea behind Caterpillar and Dupont Denemours 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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