Correlation Between Rev and Komatsu

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

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

Diversification Opportunities for Rev and Komatsu

0.34

Correlation Coefficient

Rev  Komatsu

Weak diversification

The 3 months correlation between Rev and Komatsu is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Rev Group and Komatsu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Komatsu and Rev 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 Rev Group 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 Rev i.e., Rev and Komatsu go up and down completely randomly.

Pair Corralation between Rev and Komatsu

Given the investment horizon of 90 days Rev Group is expected to generate 1.2 times more return on investment than Komatsu. However, Rev is 1.2 times more volatile than Komatsu. It trades about 0.01 of its potential returns per unit of risk. Komatsu is currently generating about 0.0 per unit of risk. If you would invest  3,161  in Rev Group on October 4, 2024 and sell it today you would lose (17.00) from holding Rev Group or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Rev Group  vs.  Komatsu

Rev Group

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rev Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Rev reported solid returns over the last few months and may actually be approaching a breakup point.

Komatsu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Komatsu has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Komatsu is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rev and Komatsu

The main advantage of trading using opposite Rev and Komatsu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rev 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 Rev Group 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.