Correlation Between Hitachi Construction and Komatsu

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

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

Diversification Opportunities for Hitachi Construction and Komatsu

0.41

Correlation Coefficient

Hitachi Construction  Komatsu

Very weak diversification

The 3 months correlation between Hitachi and Komatsu is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Komatsu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Komatsu and Hitachi Construction 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 Hitachi Construction Machinery 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 Hitachi Construction i.e., Hitachi Construction and Komatsu go up and down completely randomly.

Pair Corralation between Hitachi Construction and Komatsu

Assuming the 90 days horizon Hitachi Construction Machinery is expected to under-perform the Komatsu. In addition to that, Hitachi Construction is 1.76 times more volatile than Komatsu. It trades about -0.03 of its total potential returns per unit of risk. Komatsu is currently generating about 0.07 per unit of volatility. If you would invest  2,611  in Komatsu on September 17, 2024 and sell it today you would earn a total of  148.00  from holding Komatsu or generate 5.67% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  Komatsu

Hitachi Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hitachi Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Hitachi Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Komatsu

Risk-Adjusted Performance

5 of 100

Insignificant

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. In spite of fairly strong basic indicators, Komatsu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hitachi Construction and Komatsu

The main advantage of trading using opposite Hitachi Construction and Komatsu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction 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 Hitachi Construction Machinery 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.