Correlation Between Caterpillar and American Express

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

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

Diversification Opportunities for Caterpillar and American Express

0.77

Correlation Coefficient

Caterpillar  American Express

Poor diversification

The 3 months correlation between Caterpillar and American is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Caterpillar i.e., Caterpillar and American Express go up and down completely randomly.

Pair Corralation between Caterpillar and American Express

Considering the 90-day investment horizon Caterpillar is expected to generate 0.85 times more return on investment than American Express. However, Caterpillar is 1.18 times less risky than American Express. It trades about 0.35 of its potential returns per unit of risk. American Express is currently generating about 0.07 per unit of risk. If you would invest  32,193  in Caterpillar on May 5, 2025 and sell it today you would earn a total of  10,676  from holding Caterpillar or generate 33.16% return on investment over 90 days.

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

Caterpillar  vs.  American Express

Caterpillar

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Express

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Caterpillar and American Express

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

The idea behind Caterpillar and American Express 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.