Correlation Between Caterpillar and SLR Investment

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

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

Diversification Opportunities for Caterpillar and SLR Investment

0.64

Correlation Coefficient

Caterpillar  SLR Investment

Poor diversification

The 3 months correlation between Caterpillar and SLR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and SLR Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLR Investment 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 SLR Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLR Investment Corp has no effect on the direction of Caterpillar i.e., Caterpillar and SLR Investment go up and down completely randomly.

Pair Corralation between Caterpillar and SLR Investment

Assuming the 90 days trading horizon Caterpillar is expected to under-perform the SLR Investment. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 1.12 times less risky than SLR Investment. The stock trades about -0.06 of its potential returns per unit of risk. The SLR Investment Corp is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,501  in SLR Investment Corp on September 15, 2024 and sell it today you would earn a total of  108.00  from holding SLR Investment Corp or generate 7.2% return on investment over 90 days.

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

Caterpillar  vs.  SLR Investment Corp

Caterpillar

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Caterpillar exhibited solid returns over the last few months and may actually be approaching a breakup point.

SLR Investment Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SLR Investment Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SLR Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caterpillar and SLR Investment

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

The idea behind Caterpillar and SLR Investment 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.