Correlation Between Cummins and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Cummins and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cummins and Dow Jones Industrial, you can compare the effects of market volatilities on Cummins and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and Dow Jones.
Diversification Opportunities for Cummins and Dow Jones
Very weak diversification
The 3 months correlation between Cummins and Dow is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Cummins i.e., Cummins and Dow Jones go up and down completely randomly.
Pair Corralation between Cummins and Dow Jones
Assuming the 90 days horizon Cummins is expected to generate 1.42 times more return on investment than Dow Jones. However, Cummins is 1.42 times more volatile than Dow Jones Industrial. It trades about 0.4 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.1 per unit of risk. If you would invest 33,520 in Cummins on October 22, 2024 and sell it today you would earn a total of 2,360 from holding Cummins or generate 7.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 84.21% |
| Values | Daily Returns |
Cummins vs. Dow Jones Industrial
Performance |
| Timeline |
Cummins and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Cummins
Pair trading matchups for Cummins
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Cummins and Dow Jones
The main advantage of trading using opposite Cummins and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Cummins vs. JAPAN TOBACCO UNSPADR12 | Cummins vs. HANOVER INSURANCE | Cummins vs. Insurance Australia Group | Cummins vs. Japan Tobacco |
| Dow Jones vs. Nasdaq Inc | Dow Jones vs. Summit Materials | Dow Jones vs. Vulcan Materials | Dow Jones vs. Celsius Holdings |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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