Correlation Between Komatsu and KUBOTA CORP

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

By analyzing existing cross correlation between Komatsu and KUBOTA P ADR20, you can compare the effects of market volatilities on Komatsu and KUBOTA CORP 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 KUBOTA CORP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Komatsu and KUBOTA CORP.

Diversification Opportunities for Komatsu and KUBOTA CORP

0.84

Correlation Coefficient

Komatsu  KUBOTA CORP

Very poor diversification

The 3 months correlation between Komatsu and KUBOTA is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Komatsu and KUBOTA P ADR20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KUBOTA P ADR20 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 KUBOTA CORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KUBOTA P ADR20 has no effect on the direction of Komatsu i.e., Komatsu and KUBOTA CORP go up and down completely randomly.

Pair Corralation between Komatsu and KUBOTA CORP

Assuming the 90 days trading horizon Komatsu is expected to generate 2.11 times less return on investment than KUBOTA CORP. But when comparing it to its historical volatility, Komatsu is 1.11 times less risky than KUBOTA CORP. It trades about 0.04 of its potential returns per unit of risk. KUBOTA P ADR20 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,450  in KUBOTA P ADR20 on December 30, 2024 and sell it today you would earn a total of  450.00  from holding KUBOTA P ADR20 or generate 8.26% return on investment over 90 days.

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

Komatsu  vs.  KUBOTA P ADR20

Komatsu

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 2 (%) 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.

KUBOTA P ADR20

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KUBOTA P ADR20 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, KUBOTA CORP may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Komatsu and KUBOTA CORP

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

The idea behind Komatsu and KUBOTA P ADR20 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.