Correlation Between Caterpillar and Lithium Ionic

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

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

Diversification Opportunities for Caterpillar and Lithium Ionic

0.63

Correlation Coefficient

Caterpillar  Lithium Ionic

Poor diversification

The 3 months correlation between Caterpillar and Lithium is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Lithium Ionic Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Ionic Corp 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 Lithium Ionic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Ionic Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Lithium Ionic go up and down completely randomly.

Pair Corralation between Caterpillar and Lithium Ionic

Considering the 90-day investment horizon Caterpillar is expected to generate 1.85 times less return on investment than Lithium Ionic. But when comparing it to its historical volatility, Caterpillar is 2.86 times less risky than Lithium Ionic. It trades about 0.16 of its potential returns per unit of risk. Lithium Ionic Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  49.00  in Lithium Ionic Corp on September 2, 2024 and sell it today you would earn a total of  15.00  from holding Lithium Ionic Corp or generate 30.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Caterpillar  vs.  Lithium Ionic Corp

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.

Lithium Ionic Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Ionic Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental indicators, Lithium Ionic reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Lithium Ionic

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

The idea behind Caterpillar and Lithium Ionic Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.