Correlation Between Daimler Truck and KOMATSU

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

By analyzing existing cross correlation between Daimler Truck Holding and KOMATSU LTD SPONS, you can compare the effects of market volatilities on Daimler Truck 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 Daimler Truck with a short position of KOMATSU. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daimler Truck and KOMATSU.

Diversification Opportunities for Daimler Truck and KOMATSU

0.19

Correlation Coefficient

Daimler Truck  KOMATSU

Average diversification

The 3 months correlation between Daimler and KOMATSU is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Daimler Truck Holding and KOMATSU LTD SPONS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOMATSU LTD SPONS and Daimler Truck 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 Daimler Truck Holding 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 LTD SPONS has no effect on the direction of Daimler Truck i.e., Daimler Truck and KOMATSU go up and down completely randomly.

Pair Corralation between Daimler Truck and KOMATSU

Assuming the 90 days trading horizon Daimler Truck Holding is expected to generate 1.26 times more return on investment than KOMATSU. However, Daimler Truck is 1.26 times more volatile than KOMATSU LTD SPONS. It trades about 0.11 of its potential returns per unit of risk. KOMATSU LTD SPONS is currently generating about 0.1 per unit of risk. If you would invest  3,246  in Daimler Truck Holding on September 22, 2024 and sell it today you would earn a total of  452.00  from holding Daimler Truck Holding or generate 13.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Daimler Truck Holding  vs.  KOMATSU LTD SPONS

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.

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.

Pair Trading with Daimler Truck and KOMATSU

The main advantage of trading using opposite Daimler Truck and KOMATSU positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daimler Truck 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 Daimler Truck Holding and KOMATSU LTD SPONS 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.