Correlation Between Caterpillar and NGM Biopharmaceutica

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

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

Diversification Opportunities for Caterpillar and NGM Biopharmaceutica

0.0

Correlation Coefficient

Caterpillar  NGM Biopharmaceutica

Pay attention - limited upside

The 3 months correlation between Caterpillar and NGM is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and NGM Biopharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGM Biopharmaceuticals 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 NGM Biopharmaceutica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGM Biopharmaceuticals has no effect on the direction of Caterpillar i.e., Caterpillar and NGM Biopharmaceutica go up and down completely randomly.

Pair Corralation between Caterpillar and NGM Biopharmaceutica

If you would invest (100.00) in NGM Biopharmaceuticals on December 29, 2024 and sell it today you would earn a total of  100.00  from holding NGM Biopharmaceuticals or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Caterpillar  vs.  NGM Biopharmaceuticals

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.

NGM Biopharmaceuticals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Caterpillar and NGM Biopharmaceutica

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

The idea behind Caterpillar and NGM Biopharmaceuticals 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.