Correlation Between Komatsu and Alamo

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

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

Diversification Opportunities for Komatsu and Alamo

-0.2

Correlation Coefficient

Komatsu  Alamo

Good diversification

The 3 months correlation between Komatsu and Alamo is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Komatsu and Alamo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alamo Group 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 Alamo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alamo Group has no effect on the direction of Komatsu i.e., Komatsu and Alamo go up and down completely randomly.

Pair Corralation between Komatsu and Alamo

Assuming the 90 days horizon Komatsu is expected to generate 0.93 times more return on investment than Alamo. However, Komatsu is 1.07 times less risky than Alamo. It trades about 0.02 of its potential returns per unit of risk. Alamo Group is currently generating about 0.01 per unit of risk. If you would invest  2,781  in Komatsu on December 5, 2024 and sell it today you would earn a total of  150.00  from holding Komatsu or generate 5.39% return on investment over 90 days.

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

Komatsu  vs.  Alamo Group

Komatsu

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Komatsu may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Alamo Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alamo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Komatsu and Alamo

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

The idea behind Komatsu and Alamo Group 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.