Correlation Between Caterpillar and Live Ventures

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

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

Diversification Opportunities for Caterpillar and Live Ventures

0.78

Correlation Coefficient

Caterpillar  Live Ventures

Poor diversification

The 3 months correlation between Caterpillar and Live is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Live Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Ventures 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 Live Ventures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Ventures has no effect on the direction of Caterpillar i.e., Caterpillar and Live Ventures go up and down completely randomly.

Pair Corralation between Caterpillar and Live Ventures

Considering the 90-day investment horizon Caterpillar is expected to generate 0.52 times more return on investment than Live Ventures. However, Caterpillar is 1.91 times less risky than Live Ventures. It trades about -0.05 of its potential returns per unit of risk. Live Ventures is currently generating about -0.11 per unit of risk. If you would invest  36,168  in Caterpillar on December 29, 2024 and sell it today you would lose (2,238) from holding Caterpillar or give up 6.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Caterpillar  vs.  Live Ventures

Caterpillar

Risk-Adjusted Performance

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 comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Live Ventures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Live Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Caterpillar and Live Ventures

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

The idea behind Caterpillar and Live Ventures 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.