Correlation Between Corporate Office and Komatsu

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

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

Diversification Opportunities for Corporate Office and Komatsu

-0.55

Correlation Coefficient

Corporate Office  Komatsu

Excellent diversification

The 3 months correlation between Corporate and Komatsu is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Corporate Office Properties and Komatsu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Komatsu and Corporate Office 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 Corporate Office Properties 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 Corporate Office i.e., Corporate Office and Komatsu go up and down completely randomly.

Pair Corralation between Corporate Office and Komatsu

Assuming the 90 days horizon Corporate Office Properties is expected to under-perform the Komatsu. But the stock apears to be less risky and, when comparing its historical volatility, Corporate Office Properties is 1.27 times less risky than Komatsu. The stock trades about -0.18 of its potential returns per unit of risk. The Komatsu is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,676  in Komatsu on December 28, 2024 and sell it today you would earn a total of  124.00  from holding Komatsu or generate 4.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Corporate Office Properties  vs.  Komatsu

Corporate Office Pro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Corporate Office Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Komatsu

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Komatsu are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Komatsu is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Corporate Office and Komatsu

The main advantage of trading using opposite Corporate Office and Komatsu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Corporate Office 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 Corporate Office Properties 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.