Correlation Between Caterpillar and Evofem Biosciences

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

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

Diversification Opportunities for Caterpillar and Evofem Biosciences

-0.87

Correlation Coefficient

Caterpillar  Evofem Biosciences

Pay attention - limited upside

The 3 months correlation between Caterpillar and Evofem is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Evofem Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evofem Biosciences 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 Evofem Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evofem Biosciences has no effect on the direction of Caterpillar i.e., Caterpillar and Evofem Biosciences go up and down completely randomly.

Pair Corralation between Caterpillar and Evofem Biosciences

If you would invest  33,902  in Caterpillar on September 3, 2024 and sell it today you would earn a total of  6,709  from holding Caterpillar or generate 19.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	0.0%
Values	Daily Returns

Caterpillar  vs.  Evofem Biosciences

Caterpillar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Evofem Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evofem Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Evofem Biosciences is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Caterpillar and Evofem Biosciences

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

The idea behind Caterpillar and Evofem Biosciences 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.