Correlation Between Komatsu and Volvo AB

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

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

Diversification Opportunities for Komatsu and Volvo AB

0.47

Correlation Coefficient

Komatsu  Volvo AB

Very weak diversification

The 3 months correlation between Komatsu and Volvo is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Komatsu and Volvo AB ser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volvo AB ser 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 Volvo AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volvo AB ser has no effect on the direction of Komatsu i.e., Komatsu and Volvo AB go up and down completely randomly.

Pair Corralation between Komatsu and Volvo AB

Assuming the 90 days horizon Komatsu is expected to generate 0.7 times more return on investment than Volvo AB. However, Komatsu is 1.43 times less risky than Volvo AB. It trades about 0.06 of its potential returns per unit of risk. Volvo AB ser is currently generating about 0.04 per unit of risk. If you would invest  2,640  in Komatsu on September 16, 2024 and sell it today you would earn a total of  119.00  from holding Komatsu or generate 4.51% return on investment over 90 days.

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

Komatsu  vs.  Volvo AB ser

Komatsu

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 4 (%) 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.

Volvo AB ser

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Komatsu and Volvo AB

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

The idea behind Komatsu and Volvo AB ser 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.