Correlation Between Caterpillar and Nouveau Life

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

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

Diversification Opportunities for Caterpillar and Nouveau Life

0.14

Correlation Coefficient

Caterpillar  Nouveau Life

Average diversification

The 3 months correlation between Caterpillar and Nouveau is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Nouveau Life Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nouveau Life Pharmac 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 Nouveau Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nouveau Life Pharmac has no effect on the direction of Caterpillar i.e., Caterpillar and Nouveau Life go up and down completely randomly.

Pair Corralation between Caterpillar and Nouveau Life

Considering the 90-day investment horizon Caterpillar is expected to under-perform the Nouveau Life. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 21.87 times less risky than Nouveau Life. The stock trades about -0.08 of its potential returns per unit of risk. The Nouveau Life Pharmaceuticals is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Nouveau Life Pharmaceuticals on December 30, 2024 and sell it today you would earn a total of  0.00  from holding Nouveau Life Pharmaceuticals or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Caterpillar  vs.  Nouveau Life Pharmaceuticals

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Nouveau Life Pharmac

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nouveau Life Pharmaceuticals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Nouveau Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and Nouveau Life

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

The idea behind Caterpillar and Nouveau Life 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.

Check out your portfolio center.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.