Correlation Between 3M and Komatsu

Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Komatsu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M Company and Komatsu, you can compare the effects of market volatilities on 3M 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 3M with a short position of Komatsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Komatsu.

Diversification Opportunities for 3M and Komatsu

0.62

Correlation Coefficient

3M  Komatsu

Poor diversification

The 3 months correlation between 3M and Komatsu is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Komatsu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Komatsu and 3M 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 3M Company 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 3M i.e., 3M and Komatsu go up and down completely randomly.

Pair Corralation between 3M and Komatsu

Considering the 90-day investment horizon 3M Company is expected to under-perform the Komatsu. In addition to that, 3M is 1.06 times more volatile than Komatsu. It trades about -0.02 of its total potential returns per unit of risk. Komatsu is currently generating about 0.07 per unit of volatility. If you would invest  2,611  in Komatsu on September 17, 2024 and sell it today you would earn a total of  148.00  from holding Komatsu or generate 5.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

3M Company  vs.  Komatsu

3M Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, 3M is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Komatsu

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Komatsu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with 3M and Komatsu

The main advantage of trading using opposite 3M and Komatsu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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 3M Company 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.