Correlation Between Terex and PACCAR

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

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

Diversification Opportunities for Terex and PACCAR

0.5

Correlation Coefficient

Terex  PACCAR

Very weak diversification

The 3 months correlation between Terex and PACCAR is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Terex and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc and Terex 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 Terex are associated (or correlated) with PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Terex i.e., Terex and PACCAR go up and down completely randomly.

Pair Corralation between Terex and PACCAR

Considering the 90-day investment horizon Terex is expected to generate 2.85 times less return on investment than PACCAR. In addition to that, Terex is 1.65 times more volatile than PACCAR Inc. It trades about 0.01 of its total potential returns per unit of risk. PACCAR Inc is currently generating about 0.06 per unit of volatility. If you would invest  6,428  in PACCAR Inc on February 20, 2025 and sell it today you would earn a total of  3,101  from holding PACCAR Inc or generate 48.24% return on investment over 90 days.

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

Terex  vs.  PACCAR Inc

Terex

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Terex are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Terex is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PACCAR Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days PACCAR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Terex and PACCAR

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

The idea behind Terex and PACCAR Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.