Correlation Between Deere and KOMATSU
Can any of the company-specific risk be diversified away by investing in both Deere 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 Deere and KOMATSU into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deere Company and KOMATSU LTD SPONS, you can compare the effects of market volatilities on Deere 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 Deere with a short position of KOMATSU. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deere and KOMATSU.
Diversification Opportunities for Deere and KOMATSU
Very weak diversification
The 3 months correlation between Deere and KOMATSU is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Deere Company 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 Deere 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 Deere Company 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 Deere i.e., Deere and KOMATSU go up and down completely randomly.
Pair Corralation between Deere and KOMATSU
Assuming the 90 days trading horizon Deere is expected to generate 2.03 times less return on investment than KOMATSU. But when comparing it to its historical volatility, Deere Company is 1.21 times less risky than KOMATSU. It trades about 0.02 of its potential returns per unit of risk. KOMATSU LTD SPONS is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,969 in KOMATSU LTD SPONS on September 2, 2024 and sell it today you would earn a total of 531.00 from holding KOMATSU LTD SPONS or generate 26.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Deere Company vs. KOMATSU LTD SPONS
Performance |
| Timeline |
| Deere Company |
| KOMATSU LTD SPONS |
Deere and KOMATSU Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Deere and KOMATSU
The main advantage of trading using opposite Deere and KOMATSU positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deere 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 Deere Company 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.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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets |