Correlation Between Graco and Cummins
Can any of the company-specific risk be diversified away by investing in both Graco 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 Graco and Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Graco Inc and Cummins, you can compare the effects of market volatilities on Graco 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 Graco with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of Graco and Cummins.
Diversification Opportunities for Graco and Cummins
Very poor diversification
The 3 months correlation between Graco and Cummins is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Graco Inc and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Graco 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 Graco Inc 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 Graco i.e., Graco and Cummins go up and down completely randomly.
Pair Corralation between Graco and Cummins
Considering the 90-day investment horizon Graco is expected to generate 1.49 times less return on investment than Cummins. But when comparing it to its historical volatility, Graco Inc is 1.07 times less risky than Cummins. It trades about 0.05 of its potential returns per unit of risk. Cummins is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 23,303 in Cummins on August 24, 2024 and sell it today you would earn a total of 13,959 from holding Cummins or generate 59.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Graco Inc vs. Cummins
Performance |
| Timeline |
| Graco Inc |
| Cummins |
Graco and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Graco and Cummins
The main advantage of trading using opposite Graco and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Graco 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.The idea behind Graco Inc and Cummins 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.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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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