Correlation Between BRIT AMER and KOMATSU

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

By analyzing existing cross correlation between BRIT AMER TOBACCO and KOMATSU LTD SPONS, you can compare the effects of market volatilities on BRIT AMER 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 BRIT AMER with a short position of KOMATSU. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRIT AMER and KOMATSU.

Diversification Opportunities for BRIT AMER and KOMATSU

0.7

Correlation Coefficient

BRIT AMER  KOMATSU

Poor diversification

The 3 months correlation between BRIT and KOMATSU is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding BRIT AMER TOBACCO and KOMATSU LTD SPONS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOMATSU LTD SPONS and BRIT AMER 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 BRIT AMER TOBACCO 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 LTD SPONS has no effect on the direction of BRIT AMER i.e., BRIT AMER and KOMATSU go up and down completely randomly.

Pair Corralation between BRIT AMER and KOMATSU

Assuming the 90 days trading horizon BRIT AMER is expected to generate 2.63 times less return on investment than KOMATSU. But when comparing it to its historical volatility, BRIT AMER TOBACCO is 1.62 times less risky than KOMATSU. It trades about 0.03 of its potential returns per unit of risk. KOMATSU LTD SPONS is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,888  in KOMATSU LTD SPONS on October 4, 2024 and sell it today you would earn a total of  732.00  from holding KOMATSU LTD SPONS or generate 38.77% return on investment over 90 days.

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

BRIT AMER TOBACCO  vs.  KOMATSU LTD SPONS

BRIT AMER TOBACCO

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BRIT AMER TOBACCO are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BRIT AMER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

KOMATSU LTD SPONS

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KOMATSU LTD SPONS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, KOMATSU may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BRIT AMER and KOMATSU

The main advantage of trading using opposite BRIT AMER and KOMATSU positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRIT AMER 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 BRIT AMER TOBACCO and KOMATSU LTD SPONS 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.