Correlation Between Trane Technologies and Cummins
Can any of the company-specific risk be diversified away by investing in both Trane Technologies and Cummins 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 Trane Technologies and Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Trane Technologies plc and Cummins, you can compare the effects of market volatilities on Trane Technologies and Cummins 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 Trane Technologies with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trane Technologies and Cummins.
Diversification Opportunities for Trane Technologies and Cummins
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Trane and Cummins is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Trane Technologies 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 Trane Technologies plc are associated (or correlated) with Cummins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cummins has no effect on the direction of Trane Technologies i.e., Trane Technologies and Cummins go up and down completely randomly.
Pair Corralation between Trane Technologies and Cummins
Assuming the 90 days horizon Trane Technologies plc is expected to under-perform the Cummins. But the stock apears to be less risky and, when comparing its historical volatility, Trane Technologies plc is 1.11 times less risky than Cummins. The stock trades about -0.08 of its potential returns per unit of risk. The Cummins is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 33,411 in Cummins on September 13, 2024 and sell it today you would earn a total of 2,399 from holding Cummins or generate 7.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Trane Technologies plc vs. Cummins
Performance |
| Timeline |
| Trane Technologies plc |
| Cummins |
Trane Technologies and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Trane Technologies and Cummins
The main advantage of trading using opposite Trane Technologies and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies position performs unexpectedly, Cummins 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 Cummins will offset losses from the drop in Cummins' long position.| Trane Technologies vs. Federal Agricultural Mortgage | Trane Technologies vs. Penta Ocean Construction Co | Trane Technologies vs. Materialise NV | Trane Technologies vs. Daito Trust Construction |
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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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