Correlation Between Cummins and Daifuku
Can any of the company-specific risk be diversified away by investing in both Cummins and Daifuku 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 Daifuku into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cummins and Daifuku Co, you can compare the effects of market volatilities on Cummins and Daifuku 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 Daifuku. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and Daifuku.
Diversification Opportunities for Cummins and Daifuku
Modest diversification
The 3 months correlation between Cummins and Daifuku is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Daifuku Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daifuku 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 Daifuku. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daifuku has no effect on the direction of Cummins i.e., Cummins and Daifuku go up and down completely randomly.
Pair Corralation between Cummins and Daifuku
Considering the 90-day investment horizon Cummins is expected to generate 0.65 times more return on investment than Daifuku. However, Cummins is 1.54 times less risky than Daifuku. It trades about 0.08 of its potential returns per unit of risk. Daifuku Co is currently generating about 0.04 per unit of risk. If you would invest 26,440 in Cummins on December 4, 2024 and sell it today you would earn a total of 9,157 from holding Cummins or generate 34.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cummins vs. Daifuku Co
Performance |
| Timeline |
| Cummins |
| Daifuku |
Cummins and Daifuku Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cummins and Daifuku
The main advantage of trading using opposite Cummins and Daifuku positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, Daifuku 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 Daifuku will offset losses from the drop in Daifuku's long position.The idea behind Cummins and Daifuku Co 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.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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