Correlation Between Caterpillar and Komatsu
Can any of the company-specific risk be diversified away by investing in both Caterpillar 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 Caterpillar and Komatsu into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and Komatsu, you can compare the effects of market volatilities on Caterpillar 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 Caterpillar with a short position of Komatsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and Komatsu.
Diversification Opportunities for Caterpillar and Komatsu
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and Komatsu is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Komatsu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Komatsu and Caterpillar 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 Caterpillar 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 Caterpillar i.e., Caterpillar and Komatsu go up and down completely randomly.
Pair Corralation between Caterpillar and Komatsu
Considering the 90-day investment horizon Caterpillar is expected to under-perform the Komatsu. But the stock apears to be less risky and, when comparing its historical volatility, Caterpillar is 2.59 times less risky than Komatsu. The stock trades about -0.22 of its potential returns per unit of risk. The Komatsu is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,891 in Komatsu on December 4, 2024 and sell it today you would earn a total of 99.00 from holding Komatsu or generate 3.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. Komatsu
Performance |
| Timeline |
| Caterpillar |
| Komatsu |
Caterpillar and Komatsu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and Komatsu
The main advantage of trading using opposite Caterpillar and Komatsu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar 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.| Caterpillar vs. AGCO Corporation | Caterpillar vs. Nikola Corp | Caterpillar vs. PACCAR Inc | Caterpillar vs. Deere Company |
| Komatsu vs. Gencor Industries | Komatsu vs. Rev Group | Komatsu vs. Manitowoc | Komatsu vs. Columbus McKinnon |
Check out your portfolio center.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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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