Correlation Between Caterpillar and Sirius XM

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

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

Diversification Opportunities for Caterpillar and Sirius XM

-0.93

Correlation Coefficient

Caterpillar  Sirius XM

Pay attention - limited upside

The 3 months correlation between Caterpillar and Sirius is -0.93. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Sirius XM Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sirius XM Holding 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 Sirius XM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sirius XM Holding has no effect on the direction of Caterpillar i.e., Caterpillar and Sirius XM go up and down completely randomly.

Pair Corralation between Caterpillar and Sirius XM

Considering the 90-day investment horizon Caterpillar is expected to generate 0.59 times more return on investment than Sirius XM. However, Caterpillar is 1.68 times less risky than Sirius XM. It trades about 0.07 of its potential returns per unit of risk. Sirius XM Holding is currently generating about -0.03 per unit of risk. If you would invest  20,406  in Caterpillar on January 20, 2024 and sell it today you would earn a total of  15,060  from holding Caterpillar or generate 73.8% return on investment over 90 days.

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

Caterpillar  vs.  Sirius XM Holding

Caterpillar

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Caterpillar unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sirius XM Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sirius XM Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Caterpillar and Sirius XM

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

The idea behind Caterpillar and Sirius XM Holding 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.