Question 1: Is the average return for Caterpillar stock higher after a drop?
Consider two situations,
Case 1: Caterpillar stock drops by -5% or more in a week
Case 2: Caterpillar stock rises by 5% or more in a week
Is the average return for Caterpillar stock higher over the subsequent month after Case 1 or Case 2?
CAT stock fares better after Case 1, with an average return of 3.1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.6% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Caterpillar stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold Caterpillar stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you - at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine's calculations, patience absolutely pays for most stocks!
For CAT stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
Next N DaysCAT Average ReturnS&P 500 Average Return1 day0.1%0.5%5 days0.7%1.1%10 days1%0.9%21 days3.1%3.1%63 days6.9%5.2%126 days10.5%7.4%252 days16.3%15.6%
You can try the engine to see what this table looks like for Caterpillar after a larger loss over the last week, month, or quarter.
Question 3: What about the average return after a rise if you wait for a while?
The average return after a rise is understandably lower than a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks - although CAT stock appears to be an exception to this general observation.
CAT's returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
Next N DaysCAT Average ReturnS&P 500 Average Return1 day0.1%-0.3%5 days0.1%-0.3%10 days0.6%0.1%21 days0.6%0.5%63 days4.7%3.0%126 days8.8%6.6%252 days18.7%11.7%
It's pretty powerful to test the trend for yourself for Caterpillar stock by changing the inputs in the charts above.