Correlation Between Compass Diversified and Caterpillar

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

By analyzing existing cross correlation between Compass Diversified Holdings and Caterpillar, you can compare the effects of market volatilities on Compass Diversified and Caterpillar 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 Compass Diversified with a short position of Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Diversified and Caterpillar.

Diversification Opportunities for Compass Diversified and Caterpillar

0.45

Correlation Coefficient

Compass Diversified  Caterpillar

Very weak diversification

The 3 months correlation between Compass and Caterpillar is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Compass Diversified 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 Compass Diversified Holdings are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Compass Diversified i.e., Compass Diversified and Caterpillar go up and down completely randomly.

Pair Corralation between Compass Diversified and Caterpillar

Given the investment horizon of 90 days Compass Diversified is expected to generate 2.0 times less return on investment than Caterpillar. In addition to that, Compass Diversified is 2.16 times more volatile than Caterpillar. It trades about 0.05 of its total potential returns per unit of risk. Caterpillar is currently generating about 0.22 per unit of volatility. If you would invest  38,679  in Caterpillar on June 29, 2025 and sell it today you would earn a total of  7,897  from holding Caterpillar or generate 20.42% return on investment over 90 days.

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

Compass Diversified Holdings  vs.  Caterpillar

Compass Diversified

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile fundamental indicators, Compass Diversified may actually be approaching a critical reversion point that can send shares even higher in October 2025.

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.

Pair Trading with Compass Diversified and Caterpillar

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

The idea behind Compass Diversified Holdings and Caterpillar 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.