Correlation Between Caterpillar and Living Cell

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

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

Diversification Opportunities for Caterpillar and Living Cell

-0.66

Correlation Coefficient

Caterpillar  Living Cell

Excellent diversification

The 3 months correlation between Caterpillar and Living is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Living Cell Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Living Cell Technologies 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 Living Cell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Living Cell Technologies has no effect on the direction of Caterpillar i.e., Caterpillar and Living Cell go up and down completely randomly.

Pair Corralation between Caterpillar and Living Cell

Considering the 90-day investment horizon Caterpillar is expected to generate 0.21 times more return on investment than Living Cell. However, Caterpillar is 4.75 times less risky than Living Cell. It trades about 0.09 of its potential returns per unit of risk. Living Cell Technologies is currently generating about -0.04 per unit of risk. If you would invest  34,671  in Caterpillar on September 14, 2024 and sell it today you would earn a total of  3,407  from holding Caterpillar or generate 9.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Caterpillar  vs.  Living Cell Technologies

Caterpillar

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Caterpillar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Living Cell Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Living Cell Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Caterpillar and Living Cell

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

The idea behind Caterpillar and Living Cell Technologies 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.