Correlation Between Transport International and Komatsu

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

By analyzing existing cross correlation between Transport International Holdings and Komatsu, you can compare the effects of market volatilities on Transport International and Komatsu 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 Transport International with a short position of Komatsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transport International and Komatsu.

Diversification Opportunities for Transport International and Komatsu

0.38

Correlation Coefficient

Transport International  Komatsu

Weak diversification

The 3 months correlation between Transport and Komatsu is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Transport International Holdin and Komatsu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Komatsu and Transport International 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 Transport International Holdings are associated (or correlated) with Komatsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Komatsu has no effect on the direction of Transport International i.e., Transport International and Komatsu go up and down completely randomly.

Pair Corralation between Transport International and Komatsu

Assuming the 90 days horizon Transport International is expected to generate 2.2 times less return on investment than Komatsu. In addition to that, Transport International is 1.09 times more volatile than Komatsu. It trades about 0.03 of its total potential returns per unit of risk. Komatsu is currently generating about 0.08 per unit of volatility. If you would invest  2,345  in Komatsu on September 12, 2024 and sell it today you would earn a total of  216.00  from holding Komatsu or generate 9.21% return on investment over 90 days.

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

Transport International Holdin  vs.  Komatsu

Transport International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transport International Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Transport International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Komatsu

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 6 (%) 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 January 2025.

Pair Trading with Transport International and Komatsu

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

The idea behind Transport International Holdings and Komatsu 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.