Correlation Between KOMATSU and US FOODS

Can any of the company-specific risk be diversified away by investing in both KOMATSU and US FOODS 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 US FOODS 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 US FOODS HOLDING, you can compare the effects of market volatilities on KOMATSU and US FOODS 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 US FOODS. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOMATSU and US FOODS.

Diversification Opportunities for KOMATSU and US FOODS

0.74

Correlation Coefficient

KOMATSU  US FOODS

Poor diversification

The 3 months correlation between KOMATSU and UFH is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding KOMATSU LTD SPONS and US FOODS HOLDING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US FOODS HOLDING 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 US FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US FOODS HOLDING has no effect on the direction of KOMATSU i.e., KOMATSU and US FOODS go up and down completely randomly.

Pair Corralation between KOMATSU and US FOODS

Assuming the 90 days trading horizon KOMATSU is expected to generate 1.65 times less return on investment than US FOODS. But when comparing it to its historical volatility, KOMATSU LTD SPONS is 1.03 times less risky than US FOODS. It trades about 0.1 of its potential returns per unit of risk. US FOODS HOLDING is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,550  in US FOODS HOLDING on September 22, 2024 and sell it today you would earn a total of  900.00  from holding US FOODS HOLDING or generate 16.22% return on investment over 90 days.

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

KOMATSU LTD SPONS  vs.  US FOODS HOLDING

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.

US FOODS HOLDING

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US FOODS HOLDING are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, US FOODS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KOMATSU and US FOODS

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

The idea behind KOMATSU LTD SPONS and US FOODS HOLDING 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.