Correlation Between Caterpillar and Talphera

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

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

Diversification Opportunities for Caterpillar and Talphera

-0.76

Correlation Coefficient

Caterpillar  Talphera

Pay attention - limited upside

The 3 months correlation between Caterpillar and Talphera is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Talphera in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talphera 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 Talphera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talphera has no effect on the direction of Caterpillar i.e., Caterpillar and Talphera go up and down completely randomly.

Pair Corralation between Caterpillar and Talphera

Considering the 90-day investment horizon Caterpillar is expected to generate 0.38 times more return on investment than Talphera. However, Caterpillar is 2.6 times less risky than Talphera. It trades about 0.36 of its potential returns per unit of risk. Talphera is currently generating about -0.13 per unit of risk. If you would invest  32,193  in Caterpillar on May 4, 2025 and sell it today you would earn a total of  10,676  from holding Caterpillar or generate 33.16% return on investment over 90 days.

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

Caterpillar  vs.  Talphera

Caterpillar

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 28 (%) 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.

Talphera

Risk-Adjusted Performance

Very Weak

Over the last 90 days Talphera has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in September 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Caterpillar and Talphera

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

The idea behind Caterpillar and Talphera 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.