Correlation Between Cummins and THK Co
Can any of the company-specific risk be diversified away by investing in both Cummins and THK Co 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 THK Co into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cummins and THK Co Ltd, you can compare the effects of market volatilities on Cummins and THK Co 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 THK Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and THK Co.
Diversification Opportunities for Cummins and THK Co
Very poor diversification
The 3 months correlation between Cummins and THK is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and THK Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THK Co 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 THK Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THK Co has no effect on the direction of Cummins i.e., Cummins and THK Co go up and down completely randomly.
Pair Corralation between Cummins and THK Co
Considering the 90-day investment horizon Cummins is expected to generate 0.64 times more return on investment than THK Co. However, Cummins is 1.56 times less risky than THK Co. It trades about 0.07 of its potential returns per unit of risk. THK Co Ltd is currently generating about 0.03 per unit of risk. If you would invest 22,859 in Cummins on September 12, 2024 and sell it today you would earn a total of 14,913 from holding Cummins or generate 65.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Cummins vs. THK Co Ltd
Performance |
| Timeline |
| Cummins |
| THK Co |
Cummins and THK Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cummins and THK Co
The main advantage of trading using opposite Cummins and THK Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, THK Co 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 THK Co will offset losses from the drop in THK Co's long position.The idea behind Cummins and THK Co Ltd 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.| THK Co vs. Xinjiang Goldwind Science | THK Co vs. American Superconductor | THK Co vs. Cummins | THK Co 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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