Correlation Between Caterpillar and GE Aerospace
Can any of the company-specific risk be diversified away by investing in both Caterpillar and GE Aerospace 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 GE Aerospace into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and GE Aerospace, you can compare the effects of market volatilities on Caterpillar and GE Aerospace 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 GE Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and GE Aerospace.
Diversification Opportunities for Caterpillar and GE Aerospace
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Caterpillar and GE Aerospace is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace 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 GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Caterpillar i.e., Caterpillar and GE Aerospace go up and down completely randomly.
Pair Corralation between Caterpillar and GE Aerospace
Considering the 90-day investment horizon Caterpillar is expected to generate 1.76 times more return on investment than GE Aerospace. However, Caterpillar is 1.76 times more volatile than GE Aerospace. It trades about 0.16 of its potential returns per unit of risk. GE Aerospace is currently generating about -0.06 per unit of risk. If you would invest 46,844 in Caterpillar on August 25, 2025 and sell it today you would earn a total of 8,199 from holding Caterpillar or generate 17.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. GE Aerospace
Performance |
| Timeline |
| Caterpillar |
| GE Aerospace |
Caterpillar and GE Aerospace Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and GE Aerospace
The main advantage of trading using opposite Caterpillar and GE Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, GE Aerospace 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 GE Aerospace will offset losses from the drop in GE Aerospace's long position.| Caterpillar vs. Roper Technologies, | Caterpillar vs. United Rentals | Caterpillar vs. Cummins | Caterpillar vs. Ametek Inc |
| GE Aerospace vs. Raytheon Technologies Corp | GE Aerospace vs. Caterpillar | GE Aerospace vs. The Boeing | GE Aerospace vs. Lockheed Martin |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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