Correlation Between KOMATSU and Playmates Toys

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

By analyzing existing cross correlation between KOMATSU LTD SPONS and Playmates Toys Limited, you can compare the effects of market volatilities on KOMATSU and Playmates Toys 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 Playmates Toys. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOMATSU and Playmates Toys.

Diversification Opportunities for KOMATSU and Playmates Toys

-0.22

Correlation Coefficient

KOMATSU  Playmates Toys

Very good diversification

The 3 months correlation between KOMATSU and Playmates is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding KOMATSU LTD SPONS and Playmates Toys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playmates Toys 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 LTD SPONS are associated (or correlated) with Playmates Toys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playmates Toys has no effect on the direction of KOMATSU i.e., KOMATSU and Playmates Toys go up and down completely randomly.

Pair Corralation between KOMATSU and Playmates Toys

Assuming the 90 days trading horizon KOMATSU is expected to generate 4.75 times less return on investment than Playmates Toys. But when comparing it to its historical volatility, KOMATSU LTD SPONS is 9.45 times less risky than Playmates Toys. It trades about 0.12 of its potential returns per unit of risk. Playmates Toys Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6.90  in Playmates Toys Limited on December 22, 2024 and sell it today you would lose (0.10) from holding Playmates Toys Limited or give up 1.45% of portfolio value over 90 days.

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

KOMATSU LTD SPONS  vs.  Playmates Toys Limited

KOMATSU LTD SPONS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KOMATSU LTD SPONS are ranked lower than 9 (%) 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 April 2025.

Playmates Toys

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Playmates Toys Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Playmates Toys reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KOMATSU and Playmates Toys

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

The idea behind KOMATSU LTD SPONS and Playmates Toys Limited 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.