Correlation Between Caterpillar and Catalyst Biosciences

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

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

Diversification Opportunities for Caterpillar and Catalyst Biosciences

-0.61

Correlation Coefficient

Caterpillar  Catalyst Biosciences

Excellent diversification

The 3 months correlation between Caterpillar and Catalyst is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Catalyst Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalyst 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 Catalyst Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalyst Biosciences has no effect on the direction of Caterpillar i.e., Caterpillar and Catalyst Biosciences go up and down completely randomly.

Pair Corralation between Caterpillar and Catalyst Biosciences

Considering the 90-day investment horizon Caterpillar is expected to generate 5.61 times less return on investment than Catalyst Biosciences. But when comparing it to its historical volatility, Caterpillar is 3.28 times less risky than Catalyst Biosciences. It trades about 0.06 of its potential returns per unit of risk. Catalyst Biosciences is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  25.00  in Catalyst Biosciences on October 9, 2024 and sell it today you would earn a total of  16.00  from holding Catalyst Biosciences or generate 64.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	26.21%
Values	Daily Returns

Caterpillar  vs.  Catalyst Biosciences

Caterpillar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Catalyst Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Catalyst Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Catalyst Biosciences is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Caterpillar and Catalyst Biosciences

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

The idea behind Caterpillar and Catalyst 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.

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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 CEOs Directory module to screen CEOs from public companies around the world.