Correlation Between ABB and Cummins
Can any of the company-specific risk be diversified away by investing in both ABB 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 ABB and Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABB and Cummins, you can compare the effects of market volatilities on ABB 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 ABB with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB and Cummins.
Diversification Opportunities for ABB and Cummins
Poor diversification
The 3 months correlation between ABB and Cummins is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and ABB 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 ABB 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 ABB i.e., ABB and Cummins go up and down completely randomly.
Pair Corralation between ABB and Cummins
Assuming the 90 days trading horizon ABB is expected to generate 1.2 times less return on investment than Cummins. In addition to that, ABB is 1.3 times more volatile than Cummins. It trades about 0.16 of its total potential returns per unit of risk. Cummins is currently generating about 0.25 per unit of volatility. 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 | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABB vs. Cummins
Performance |
| Timeline |
| ABB |
| Cummins |
ABB and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABB and Cummins
The main advantage of trading using opposite ABB and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABB 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.| ABB vs. BII Railway Transportation | ABB vs. Cogent Communications Holdings | ABB vs. Transportadora de Gas | ABB vs. Entravision Communications |
| Cummins vs. PARKEN Sport Entertainment | Cummins vs. Compagnie Plastic Omnium | Cummins vs. Jacquet Metal Service | Cummins vs. Aluminum of |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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