Correlation Between KOMATSU and Traton SE

Can any of the company-specific risk be diversified away by investing in both KOMATSU and Traton SE 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 Traton SE 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 Traton SE, you can compare the effects of market volatilities on KOMATSU and Traton SE 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 Traton SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOMATSU and Traton SE.

Diversification Opportunities for KOMATSU and Traton SE

-0.06

Correlation Coefficient

KOMATSU  Traton SE

Good diversification

The 3 months correlation between KOMATSU and Traton is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding KOMATSU LTD SPONS and Traton SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Traton SE 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 Traton SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Traton SE has no effect on the direction of KOMATSU i.e., KOMATSU and Traton SE go up and down completely randomly.

Pair Corralation between KOMATSU and Traton SE

Assuming the 90 days trading horizon KOMATSU LTD SPONS is expected to generate 0.49 times more return on investment than Traton SE. However, KOMATSU LTD SPONS is 2.05 times less risky than Traton SE. It trades about 0.04 of its potential returns per unit of risk. Traton SE is currently generating about -0.07 per unit of risk. If you would invest  2,500  in KOMATSU LTD SPONS on September 23, 2024 and sell it today you would earn a total of  20.00  from holding KOMATSU LTD SPONS or generate 0.8% return on investment over 90 days.

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

KOMATSU LTD SPONS  vs.  Traton SE

KOMATSU LTD SPONS

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KOMATSU LTD SPONS are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady primary indicators, KOMATSU may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Traton SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Traton SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Traton SE is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KOMATSU and Traton SE

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

The idea behind KOMATSU LTD SPONS and Traton SE 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.