Correlation Between Caterpillar and Coca Cola

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

Diversification Opportunities for Caterpillar and Coca Cola

0.04
  Correlation Coefficient

Significant diversification

The 3 months correlation between Caterpillar and Coca Cola is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Coca-Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca-Cola 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 Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca-Cola has no effect on the direction of Caterpillar i.e., Caterpillar and Coca Cola go up and down completely randomly.

Pair Corralation between Caterpillar and Coca Cola

Considering the 90-day investment horizon Caterpillar is expected to generate 2.47 times more return on investment than Coca Cola. However, Caterpillar is 2.47 times more volatile than Coca-Cola. It trades about 0.15 of its potential returns per unit of risk. Coca-Cola is currently generating about 0.01 per unit of risk. If you would invest  17,381  in Caterpillar on May 11, 2022 and sell it today you would earn a total of  1,222  from holding Caterpillar or generate 7.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Coca-Cola

 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 weak 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

Coca-Cola 
Coca Cola Performance
0 of 100
Over the last 90 days Coca-Cola has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Coca Cola is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Coca Cola Price Channel

Caterpillar and Coca Cola Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Coca Cola

The main advantage of trading using opposite Caterpillar and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Coca Cola 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 Coca Cola will offset losses from the drop in Coca Cola's long position.
The idea behind Caterpillar and Coca-Cola 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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