Correlation Between Caterpillar and SPDR SP

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

By analyzing existing cross correlation between Caterpillar and SPDR SP 1500, you can compare the effects of market volatilities on Caterpillar and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and SPDR SP.

Diversification Opportunities for Caterpillar and SPDR SP

0.42

Correlation Coefficient

Caterpillar  SPDR SP

Very weak diversification

The 3 months correlation between Caterpillar and SPDR is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and SPDR SP 1500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 1500 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 1500 has no effect on the direction of Caterpillar i.e., Caterpillar and SPDR SP go up and down completely randomly.

Pair Corralation between Caterpillar and SPDR SP

Considering the 90-day investment horizon Caterpillar is expected to generate 2.26 times more return on investment than SPDR SP. However, Caterpillar is 2.26 times more volatile than SPDR SP 1500. It trades about 0.25 of its potential returns per unit of risk. SPDR SP 1500 is currently generating about 0.07 per unit of risk. If you would invest  43,014  in Caterpillar on September 11, 2025 and sell it today you would earn a total of  16,422  from holding Caterpillar or generate 38.18% return on investment over 90 days.

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

Caterpillar  vs.  SPDR SP 1500

Caterpillar

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP 1500

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 1500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and SPDR SP

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

The idea behind Caterpillar and SPDR SP 1500 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 the Fundamental Analysis module to view fundamental data based on most recent published financial statements.