Correlation Between KOMATSU and Daimler Truck

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

Diversification Opportunities for KOMATSU and Daimler Truck

0.19

Correlation Coefficient

KOMATSU  Daimler Truck

Average diversification

The 3 months correlation between KOMATSU and Daimler is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding KOMATSU LTD SPONS and Daimler Truck Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daimler Truck Holding 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 Daimler Truck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daimler Truck Holding has no effect on the direction of KOMATSU i.e., KOMATSU and Daimler Truck go up and down completely randomly.

Pair Corralation between KOMATSU and Daimler Truck

Assuming the 90 days trading horizon KOMATSU LTD SPONS is expected to generate 0.56 times more return on investment than Daimler Truck. However, KOMATSU LTD SPONS is 1.77 times less risky than Daimler Truck. It trades about 0.04 of its potential returns per unit of risk. Daimler Truck Holding is currently generating about 0.02 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 Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

KOMATSU LTD SPONS  vs.  Daimler Truck Holding

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.

Daimler Truck Holding

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Daimler Truck unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KOMATSU and Daimler Truck

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

The idea behind KOMATSU LTD SPONS and Daimler Truck Holding 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.