Correlation Between Komatsu and PACCAR

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

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

Diversification Opportunities for Komatsu and PACCAR

0.69

Correlation Coefficient

Komatsu  PACCAR

Poor diversification

The 3 months correlation between Komatsu and PACCAR is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Komatsu and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Komatsu i.e., Komatsu and PACCAR go up and down completely randomly.

Pair Corralation between Komatsu and PACCAR

Assuming the 90 days horizon Komatsu is expected to generate 1.72 times more return on investment than PACCAR. However, Komatsu is 1.72 times more volatile than PACCAR Inc. It trades about -0.02 of its potential returns per unit of risk. PACCAR Inc is currently generating about -0.33 per unit of risk. If you would invest  2,917  in Komatsu on January 26, 2024 and sell it today you would lose (32.00) from holding Komatsu or give up 1.1% of portfolio value over 90 days.

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

Komatsu  vs.  PACCAR Inc

Komatsu

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Komatsu may actually be approaching a critical reversion point that can send shares even higher in May 2024.

PACCAR Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Komatsu and PACCAR

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

The idea behind Komatsu and PACCAR Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.