Correlation Between Ford and Komatsu
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Komatsu into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Komatsu, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Komatsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Komatsu.
Diversification Opportunities for Ford and Komatsu
Significant diversification
The 3 months correlation between Ford and Komatsu is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Komatsu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Komatsu and Ford 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 Ford Motor 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 Ford i.e., Ford and Komatsu go up and down completely randomly.
Pair Corralation between Ford and Komatsu
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.93 times more return on investment than Komatsu. However, Ford Motor is 1.08 times less risky than Komatsu. It trades about 0.04 of its potential returns per unit of risk. Komatsu is currently generating about 0.01 per unit of risk. If you would invest 1,122 in Ford Motor on August 28, 2024 and sell it today you would earn a total of 18.00 from holding Ford Motor or generate 1.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Komatsu
Performance |
| Timeline |
| Ford Motor |
| Komatsu |
Ford and Komatsu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Komatsu
The main advantage of trading using opposite Ford and Komatsu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor and Komatsu 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.| 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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