Correlation Between Caterpillar and SIMON

Can any of the company-specific risk be diversified away by investing in both Caterpillar and SIMON 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 SIMON into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and SIMON PPTY GROUP, you can compare the effects of market volatilities on Caterpillar and SIMON 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 SIMON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and SIMON.

Diversification Opportunities for Caterpillar and SIMON

0.17

Correlation Coefficient

Caterpillar  SIMON

Average diversification

The 3 months correlation between Caterpillar and SIMON is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and SIMON PPTY GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMON PPTY GROUP 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 SIMON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMON PPTY GROUP has no effect on the direction of Caterpillar i.e., Caterpillar and SIMON go up and down completely randomly.

Pair Corralation between Caterpillar and SIMON

Considering the 90-day investment horizon Caterpillar is expected to generate 2.42 times more return on investment than SIMON. However, Caterpillar is 2.42 times more volatile than SIMON PPTY GROUP. It trades about 0.66 of its potential returns per unit of risk. SIMON PPTY GROUP is currently generating about -0.17 per unit of risk. If you would invest  28,474  in Caterpillar on February 17, 2025 and sell it today you would earn a total of  6,884  from holding Caterpillar or generate 24.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  SIMON PPTY GROUP

Caterpillar

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

SIMON PPTY GROUP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SIMON PPTY GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SIMON is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and SIMON

The main advantage of trading using opposite Caterpillar and SIMON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, SIMON 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 SIMON will offset losses from the drop in SIMON's long position.

The idea behind Caterpillar and SIMON PPTY GROUP 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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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 the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.