Correlation Between Franklin Electric and Cummins
Can any of the company-specific risk be diversified away by investing in both Franklin Electric and Cummins 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 Franklin Electric and Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Electric Co and Cummins, you can compare the effects of market volatilities on Franklin Electric and Cummins 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 Franklin Electric with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Electric and Cummins.
Diversification Opportunities for Franklin Electric and Cummins
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Franklin and Cummins is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Electric Co and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Franklin Electric 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 Franklin Electric Co are associated (or correlated) with Cummins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cummins has no effect on the direction of Franklin Electric i.e., Franklin Electric and Cummins go up and down completely randomly.
Pair Corralation between Franklin Electric and Cummins
Given the investment horizon of 90 days Franklin Electric is expected to generate 2.19 times less return on investment than Cummins. In addition to that, Franklin Electric is 1.01 times more volatile than Cummins. It trades about 0.06 of its total potential returns per unit of risk. Cummins is currently generating about 0.14 per unit of volatility. If you would invest 21,971 in Cummins on August 24, 2024 and sell it today you would earn a total of 14,877 from holding Cummins or generate 67.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Electric Co vs. Cummins
Performance |
| Timeline |
| Franklin Electric |
| Cummins |
Franklin Electric and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Electric and Cummins
The main advantage of trading using opposite Franklin Electric and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Electric position performs unexpectedly, Cummins 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 Cummins will offset losses from the drop in Cummins' long position.| Franklin Electric vs. Graco Inc | Franklin Electric vs. Ametek Inc | Franklin Electric vs. Flowserve | Franklin Electric vs. Donaldson |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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