Correlation Between Caterpillar and Theseus Pharmaceuticals

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

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

Diversification Opportunities for Caterpillar and Theseus Pharmaceuticals

-0.49

Correlation Coefficient

Caterpillar  Theseus Pharmaceuticals

Very good diversification

The 3 months correlation between Caterpillar and Theseus is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Theseus Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Theseus Pharmaceuticals 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 Theseus Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Theseus Pharmaceuticals has no effect on the direction of Caterpillar i.e., Caterpillar and Theseus Pharmaceuticals go up and down completely randomly.

Pair Corralation between Caterpillar and Theseus Pharmaceuticals

If you would invest  33,902  in Caterpillar on August 31, 2024 and sell it today you would earn a total of  6,468  from holding Caterpillar or generate 19.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

Caterpillar  vs.  Theseus Pharmaceuticals

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

Theseus Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Theseus Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Theseus Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and Theseus Pharmaceuticals

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

The idea behind Caterpillar and Theseus Pharmaceuticals 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.