Correlation Between Caterpillar and 6 Meridian

Can any of the company-specific risk be diversified away by investing in both Caterpillar and 6 Meridian 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 6 Meridian into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caterpillar and 6 Meridian Small, you can compare the effects of market volatilities on Caterpillar and 6 Meridian 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 6 Meridian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and 6 Meridian.

Diversification Opportunities for Caterpillar and 6 Meridian

0.96

Correlation Coefficient

Caterpillar  6 Meridian

Almost no diversification

The 3 months correlation between Caterpillar and SIXS is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and 6 Meridian Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 6 Meridian Small 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 6 Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 6 Meridian Small has no effect on the direction of Caterpillar i.e., Caterpillar and 6 Meridian go up and down completely randomly.

Pair Corralation between Caterpillar and 6 Meridian

Considering the 90-day investment horizon Caterpillar is expected to generate 1.45 times more return on investment than 6 Meridian. However, Caterpillar is 1.45 times more volatile than 6 Meridian Small. It trades about 0.39 of its potential returns per unit of risk. 6 Meridian Small is currently generating about 0.09 per unit of risk. If you would invest  32,250  in Caterpillar on May 2, 2025 and sell it today you would earn a total of  11,162  from holding Caterpillar or generate 34.61% return on investment over 90 days.

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

Caterpillar  vs.  6 Meridian Small

Caterpillar

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

6 Meridian Small

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 6 Meridian Small are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, 6 Meridian is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Caterpillar and 6 Meridian

The main advantage of trading using opposite Caterpillar and 6 Meridian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, 6 Meridian 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 6 Meridian will offset losses from the drop in 6 Meridian's long position.

The idea behind Caterpillar and 6 Meridian Small 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 Stocks Directory module to find actively traded stocks across global markets.