Correlation Between Caterpillar and Surge Battery

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

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

Diversification Opportunities for Caterpillar and Surge Battery

-0.54

Correlation Coefficient

Caterpillar  Surge Battery

Excellent diversification

The 3 months correlation between Caterpillar and Surge is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Surge Battery Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Surge Battery Metals 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 Surge Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Surge Battery Metals has no effect on the direction of Caterpillar i.e., Caterpillar and Surge Battery go up and down completely randomly.

Pair Corralation between Caterpillar and Surge Battery

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Surge Battery. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 2.77 times less risky than Surge Battery. The stock trades about -0.16 of its potential returns per unit of risk. The Surge Battery Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  26.00  in Surge Battery Metals on December 2, 2024 and sell it today you would lose (1.00) from holding Surge Battery Metals or give up 3.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Caterpillar  vs.  Surge Battery Metals

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Surge Battery Metals

Risk-Adjusted Performance

Weak

Over the last 90 days Surge Battery Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Surge Battery is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Caterpillar and Surge Battery

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

The idea behind Caterpillar and Surge Battery Metals 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.