Correlation Between Caterpillar and GM

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

Diversification Opportunities for Caterpillar and GM

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Caterpillar and GM is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Caterpillar i.e., Caterpillar and GM go up and down completely randomly.

Pair Corralation between Caterpillar and GM

Considering the 90-day investment horizon Caterpillar is expected to under-perform the GM. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.3 times less risky than GM. The stock trades about -0.44 of its potential returns per unit of risk. The General Motors is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  4,039  in General Motors on June 26, 2022 and sell it today you would lose (491.00)  from holding General Motors or give up 12.16% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  General Motors

 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 latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Caterpillar Price Channel

General Motors 
GM Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady primary indicators, GM is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

GM Price Channel

Caterpillar and GM Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and GM

The main advantage of trading using opposite Caterpillar and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.
Caterpillar vs. BUSHVELD MINERALS LTD
The idea behind Caterpillar and General Motors 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.
GM vs. Industrias Bachoco SA
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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