Correlation Between Caterpillar and Sigma Labs

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

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

Diversification Opportunities for Caterpillar and Sigma Labs

-0.68

Correlation Coefficient

Caterpillar  Sigma Labs

Excellent diversification

The 3 months correlation between Caterpillar and Sigma is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Sigma Labs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigma Labs 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 Sigma Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sigma Labs has no effect on the direction of Caterpillar i.e., Caterpillar and Sigma Labs go up and down completely randomly.

Pair Corralation between Caterpillar and Sigma Labs

If you would invest  33,554  in Caterpillar on September 4, 2024 and sell it today you would earn a total of  6,697  from holding Caterpillar or generate 19.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Caterpillar  vs.  Sigma Labs

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 unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sigma Labs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sigma Labs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Sigma Labs is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Caterpillar and Sigma Labs

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

The idea behind Caterpillar and Sigma Labs 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 Transaction History module to view history of all your transactions and understand their impact on performance.