Correlation Between Caterpillar and Inverse Sp

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

By analyzing existing cross correlation between Caterpillar and Inverse Sp 500, you can compare the effects of market volatilities on Caterpillar and Inverse Sp 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 Inverse Sp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Inverse Sp.

Diversification Opportunities for Caterpillar and Inverse Sp

-0.84

Correlation Coefficient

Caterpillar  Inverse Sp

Pay attention - limited upside

The 3 months correlation between Caterpillar and Inverse is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Inverse Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Sp 500 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 Inverse Sp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Sp 500 has no effect on the direction of Caterpillar i.e., Caterpillar and Inverse Sp go up and down completely randomly.

Pair Corralation between Caterpillar and Inverse Sp

Considering the 90-day investment horizon Caterpillar is expected to generate 1.77 times more return on investment than Inverse Sp. However, Caterpillar is 1.77 times more volatile than Inverse Sp 500. It trades about 0.06 of its potential returns per unit of risk. Inverse Sp 500 is currently generating about -0.04 per unit of risk. If you would invest  20,696  in Caterpillar on February 8, 2025 and sell it today you would earn a total of  11,729  from holding Caterpillar or generate 56.67% return on investment over 90 days.

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

Caterpillar  vs.  Inverse Sp 500

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 inconsistent 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.

Inverse Sp 500

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Sp 500 are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Sp may actually be approaching a critical reversion point that can send shares even higher in June 2025.

Pair Trading with Caterpillar and Inverse Sp

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

The idea behind Caterpillar and Inverse Sp 500 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.