Correlation Between KOMATSU and FARM 51

Can any of the company-specific risk be diversified away by investing in both KOMATSU and FARM 51 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 KOMATSU and FARM 51 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KOMATSU LTD SPONS and FARM 51 GROUP, you can compare the effects of market volatilities on KOMATSU and FARM 51 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 KOMATSU with a short position of FARM 51. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOMATSU and FARM 51.

Diversification Opportunities for KOMATSU and FARM 51

-0.37

Correlation Coefficient

KOMATSU  FARM 51

Very good diversification

The 3 months correlation between KOMATSU and FARM is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding KOMATSU LTD SPONS and FARM 51 GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARM 51 GROUP and KOMATSU 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 KOMATSU LTD SPONS are associated (or correlated) with FARM 51. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FARM 51 GROUP has no effect on the direction of KOMATSU i.e., KOMATSU and FARM 51 go up and down completely randomly.

Pair Corralation between KOMATSU and FARM 51

Assuming the 90 days trading horizon KOMATSU LTD SPONS is expected to generate 0.7 times more return on investment than FARM 51. However, KOMATSU LTD SPONS is 1.42 times less risky than FARM 51. It trades about 0.01 of its potential returns per unit of risk. FARM 51 GROUP is currently generating about 0.0 per unit of risk. If you would invest  2,620  in KOMATSU LTD SPONS on September 29, 2024 and sell it today you would lose (20.00) from holding KOMATSU LTD SPONS or give up 0.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

KOMATSU LTD SPONS  vs.  FARM 51 GROUP

KOMATSU LTD SPONS

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KOMATSU LTD SPONS are ranked lower than 5 (%) 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.

FARM 51 GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FARM 51 GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with KOMATSU and FARM 51

The main advantage of trading using opposite KOMATSU and FARM 51 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KOMATSU position performs unexpectedly, FARM 51 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 FARM 51 will offset losses from the drop in FARM 51's long position.

The idea behind KOMATSU LTD SPONS and FARM 51 GROUP 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.