Correlation Between Cummins and AIR PRODCHEMICALS
Can any of the company-specific risk be diversified away by investing in both Cummins and AIR PRODCHEMICALS 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 AIR PRODCHEMICALS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cummins and AIR PRODCHEMICALS, you can compare the effects of market volatilities on Cummins and AIR PRODCHEMICALS 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 AIR PRODCHEMICALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and AIR PRODCHEMICALS.
Diversification Opportunities for Cummins and AIR PRODCHEMICALS
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cummins and AIR is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and AIR PRODCHEMICALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR PRODCHEMICALS 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 AIR PRODCHEMICALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR PRODCHEMICALS has no effect on the direction of Cummins i.e., Cummins and AIR PRODCHEMICALS go up and down completely randomly.
Pair Corralation between Cummins and AIR PRODCHEMICALS
Assuming the 90 days horizon Cummins is expected to generate 0.87 times more return on investment than AIR PRODCHEMICALS. However, Cummins is 1.15 times less risky than AIR PRODCHEMICALS. It trades about 0.14 of its potential returns per unit of risk. AIR PRODCHEMICALS is currently generating about 0.06 per unit of risk. If you would invest 21,525 in Cummins on September 12, 2024 and sell it today you would earn a total of 14,285 from holding Cummins or generate 66.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cummins vs. AIR PRODCHEMICALS
Performance |
| Timeline |
| Cummins |
| AIR PRODCHEMICALS |
Cummins and AIR PRODCHEMICALS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cummins and AIR PRODCHEMICALS
The main advantage of trading using opposite Cummins and AIR PRODCHEMICALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, AIR PRODCHEMICALS 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 AIR PRODCHEMICALS will offset losses from the drop in AIR PRODCHEMICALS's long position.| Cummins vs. AIR PRODCHEMICALS | Cummins vs. SCANSOURCE | Cummins vs. National Beverage Corp | Cummins vs. ScanSource |
| AIR PRODCHEMICALS vs. DICKS Sporting Goods | AIR PRODCHEMICALS vs. Vishay Intertechnology | AIR PRODCHEMICALS vs. Transportadora de Gas | AIR PRODCHEMICALS vs. SCIENCE IN SPORT |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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