Correlation Between Illinois Tool and Cummins
Can any of the company-specific risk be diversified away by investing in both Illinois Tool 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 Illinois Tool and Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Illinois Tool Works and Cummins, you can compare the effects of market volatilities on Illinois Tool 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 Illinois Tool with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illinois Tool and Cummins.
Diversification Opportunities for Illinois Tool and Cummins
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Illinois and Cummins is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Illinois Tool Works and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Illinois Tool 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 Illinois Tool Works 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 Illinois Tool i.e., Illinois Tool and Cummins go up and down completely randomly.
Pair Corralation between Illinois Tool and Cummins
Considering the 90-day investment horizon Illinois Tool is expected to generate 1.95 times less return on investment than Cummins. But when comparing it to its historical volatility, Illinois Tool Works is 1.32 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 23,418 in Cummins on August 24, 2024 and sell it today you would earn a total of 13,468 from holding Cummins or generate 57.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Illinois Tool Works vs. Cummins
Performance |
| Timeline |
| Illinois Tool Works |
| Cummins |
Illinois Tool and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Illinois Tool and Cummins
The main advantage of trading using opposite Illinois Tool and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illinois Tool 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.| Illinois Tool vs. Small Cap Core | Illinois Tool vs. Freedom Holding Corp | Illinois Tool vs. Gfl Environmental Holdings | Illinois Tool vs. Growth Fund Of |
| Cummins vs. Small Cap Core | Cummins vs. Freedom Holding Corp | Cummins vs. Gfl Environmental Holdings | Cummins vs. Growth Fund Of |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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