Correlation Between Cummins and Weir Group
Can any of the company-specific risk be diversified away by investing in both Cummins and Weir Group 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 Weir Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cummins and The Weir Group, you can compare the effects of market volatilities on Cummins and Weir Group 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 Weir Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and Weir Group.
Diversification Opportunities for Cummins and Weir Group
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Cummins and Weir is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and The Weir Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weir Group 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 Weir Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weir Group has no effect on the direction of Cummins i.e., Cummins and Weir Group go up and down completely randomly.
Pair Corralation between Cummins and Weir Group
Considering the 90-day investment horizon Cummins is expected to generate 0.8 times more return on investment than Weir Group. However, Cummins is 1.26 times less risky than Weir Group. It trades about 0.08 of its potential returns per unit of risk. The Weir Group is currently generating about 0.04 per unit of risk. If you would invest 22,407 in Cummins on September 5, 2024 and sell it today you would earn a total of 15,167 from holding Cummins or generate 67.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 71.52% |
| Values | Daily Returns |
Cummins vs. The Weir Group
Performance |
| Timeline |
| Cummins |
| Weir Group |
Cummins and Weir Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cummins and Weir Group
The main advantage of trading using opposite Cummins and Weir Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, Weir Group 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 Weir Group will offset losses from the drop in Weir Group's long position.The idea behind Cummins and The Weir Group 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.| Weir Group vs. Shanghai Electric Group | Weir Group vs. Xinjiang Goldwind Science | Weir Group vs. American Superconductor | Weir Group vs. Cummins |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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