Correlation Between Komatsu and MTR Corp

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

By analyzing existing cross correlation between Komatsu and MTR Corp, you can compare the effects of market volatilities on Komatsu and MTR Corp 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 Komatsu with a short position of MTR Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Komatsu and MTR Corp.

Diversification Opportunities for Komatsu and MTR Corp

-0.08

Correlation Coefficient

Komatsu  MTR Corp

Good diversification

The 3 months correlation between Komatsu and MTR is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Komatsu and MTR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Corp and Komatsu 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 Komatsu are associated (or correlated) with MTR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Corp has no effect on the direction of Komatsu i.e., Komatsu and MTR Corp go up and down completely randomly.

Pair Corralation between Komatsu and MTR Corp

Assuming the 90 days horizon Komatsu is expected to generate 0.87 times more return on investment than MTR Corp. However, Komatsu is 1.15 times less risky than MTR Corp. It trades about 0.03 of its potential returns per unit of risk. MTR Corp is currently generating about -0.03 per unit of risk. If you would invest  2,448  in Komatsu on January 26, 2024 and sell it today you would earn a total of  437.00  from holding Komatsu or generate 17.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.54%
Values	Daily Returns

Komatsu  vs.  MTR Corp

Komatsu

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Komatsu is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

MTR Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, MTR Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Komatsu and MTR Corp

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

The idea behind Komatsu and MTR 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.