Correlation Between Caterpillar and Lotus Pharmaceuticals

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

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

Diversification Opportunities for Caterpillar and Lotus Pharmaceuticals

-0.46

Correlation Coefficient

Caterpillar  Lotus Pharmaceuticals

Very good diversification

The 3 months correlation between Caterpillar and Lotus is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Lotus Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus 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 Lotus Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Pharmaceuticals has no effect on the direction of Caterpillar i.e., Caterpillar and Lotus Pharmaceuticals go up and down completely randomly.

Pair Corralation between Caterpillar and Lotus Pharmaceuticals

Considering the 90-day investment horizon Caterpillar is expected to generate 122.28 times less return on investment than Lotus Pharmaceuticals. But when comparing it to its historical volatility, Caterpillar is 53.78 times less risky than Lotus Pharmaceuticals. It trades about 0.05 of its potential returns per unit of risk. Lotus Pharmaceuticals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.36  in Lotus Pharmaceuticals on October 27, 2024 and sell it today you would lose (0.03) from holding Lotus Pharmaceuticals or give up 8.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Caterpillar  vs.  Lotus Pharmaceuticals

Caterpillar

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Lotus Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lotus Pharmaceuticals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Lotus Pharmaceuticals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Lotus Pharmaceuticals

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

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