Correlation Between KOMATSU and Caterpillar
Can any of the company-specific risk be diversified away by investing in both KOMATSU and Caterpillar 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 Caterpillar 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 Caterpillar, you can compare the effects of market volatilities on KOMATSU and Caterpillar 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 Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOMATSU and Caterpillar.
Diversification Opportunities for KOMATSU and Caterpillar
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between KOMATSU and Caterpillar is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding KOMATSU LTD SPONS and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar 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 Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of KOMATSU i.e., KOMATSU and Caterpillar go up and down completely randomly.
Pair Corralation between KOMATSU and Caterpillar
Assuming the 90 days trading horizon KOMATSU LTD SPONS is expected to generate 1.05 times more return on investment than Caterpillar. However, KOMATSU is 1.05 times more volatile than Caterpillar. It trades about -0.11 of its potential returns per unit of risk. Caterpillar is currently generating about -0.22 per unit of risk. If you would invest 2,760 in KOMATSU LTD SPONS on January 22, 2025 and sell it today you would lose (280.00) from holding KOMATSU LTD SPONS or give up 10.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KOMATSU LTD SPONS vs. Caterpillar
Performance |
| Timeline |
| KOMATSU LTD SPONS |
| Caterpillar |
KOMATSU and Caterpillar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KOMATSU and Caterpillar
The main advantage of trading using opposite KOMATSU and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KOMATSU position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.| KOMATSU vs. STMicroelectronics NV | KOMATSU vs. Nucletron Electronic Aktiengesellschaft | KOMATSU vs. FARO Technologies | KOMATSU vs. Minerals Technologies |
| Caterpillar vs. MGIC INVESTMENT | Caterpillar vs. COMMERCIAL VEHICLE | Caterpillar vs. Commercial Vehicle Group | Caterpillar vs. INTER CARS SA |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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