Correlation Between CNH Industrial and Komatsu

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

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

Diversification Opportunities for CNH Industrial and Komatsu

0.69

Correlation Coefficient

CNH Industrial  Komatsu

Poor diversification

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

Pair Corralation between CNH Industrial and Komatsu

Assuming the 90 days horizon CNH Industrial NV is expected to generate 1.43 times more return on investment than Komatsu. However, CNH Industrial is 1.43 times more volatile than Komatsu. It trades about 0.05 of its potential returns per unit of risk. Komatsu is currently generating about 0.05 per unit of risk. If you would invest  1,080  in CNH Industrial NV on December 28, 2024 and sell it today you would earn a total of  69.00  from holding CNH Industrial NV or generate 6.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

CNH Industrial NV  vs.  Komatsu

CNH Industrial NV

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNH Industrial NV are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CNH Industrial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Komatsu

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Komatsu is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CNH Industrial and Komatsu

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

The idea behind CNH Industrial NV and Komatsu 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.