Correlation Between Cummins and Atlas Copco
Can any of the company-specific risk be diversified away by investing in both Cummins and Atlas Copco 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 Cummins and Atlas Copco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cummins and Atlas Copco AB, you can compare the effects of market volatilities on Cummins and Atlas Copco 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 Cummins with a short position of Atlas Copco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and Atlas Copco.
Diversification Opportunities for Cummins and Atlas Copco
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cummins and Atlas is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Atlas Copco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco AB and Cummins 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 Cummins are associated (or correlated) with Atlas Copco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlas Copco AB has no effect on the direction of Cummins i.e., Cummins and Atlas Copco go up and down completely randomly.
Pair Corralation between Cummins and Atlas Copco
Considering the 90-day investment horizon Cummins is expected to generate 0.73 times more return on investment than Atlas Copco. However, Cummins is 1.38 times less risky than Atlas Copco. It trades about 0.14 of its potential returns per unit of risk. Atlas Copco AB is currently generating about -0.22 per unit of risk. If you would invest 35,666 in Cummins on September 12, 2024 and sell it today you would earn a total of 1,349 from holding Cummins or generate 3.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Cummins vs. Atlas Copco AB
Performance |
| Timeline |
| Cummins |
| Atlas Copco AB |
Cummins and Atlas Copco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cummins and Atlas Copco
The main advantage of trading using opposite Cummins and Atlas Copco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, Atlas Copco 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 Atlas Copco will offset losses from the drop in Atlas Copco's long position.The idea behind Cummins and Atlas Copco AB 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.| Atlas Copco vs. Xinjiang Goldwind Science | Atlas Copco vs. American Superconductor | Atlas Copco vs. Cummins | Atlas Copco vs. Aquagold International |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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