Correlation Between Caterpillar and Fundamental Income

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

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

Diversification Opportunities for Caterpillar and Fundamental Income

0.19

Correlation Coefficient

Caterpillar  Fundamental Income

Average diversification

The 3 months correlation between Caterpillar and Fundamental is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Fundamental Income Net in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Income Net 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 Fundamental Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Income Net has no effect on the direction of Caterpillar i.e., Caterpillar and Fundamental Income go up and down completely randomly.

Pair Corralation between Caterpillar and Fundamental Income

Considering the 90-day investment horizon Caterpillar is expected to generate 1.39 times more return on investment than Fundamental Income. However, Caterpillar is 1.39 times more volatile than Fundamental Income Net. It trades about 0.22 of its potential returns per unit of risk. Fundamental Income Net is currently generating about 0.02 per unit of risk. If you would invest  35,229  in Caterpillar on May 16, 2025 and sell it today you would earn a total of  6,141  from holding Caterpillar or generate 17.43% return on investment over 90 days.

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

Caterpillar  vs.  Fundamental Income Net

Caterpillar

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 17 (%) 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.

Fundamental Income Net

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Income Net are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Fundamental Income is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Caterpillar and Fundamental Income

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

The idea behind Caterpillar and Fundamental Income Net 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.