Correlation Between ScanSource and Cummins
Can any of the company-specific risk be diversified away by investing in both ScanSource 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 ScanSource and Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ScanSource and Cummins, you can compare the effects of market volatilities on ScanSource 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 ScanSource with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of ScanSource and Cummins.
Diversification Opportunities for ScanSource and Cummins
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ScanSource and Cummins is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and ScanSource 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 ScanSource 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 ScanSource i.e., ScanSource and Cummins go up and down completely randomly.
Pair Corralation between ScanSource and Cummins
Assuming the 90 days horizon ScanSource is expected to generate 1.37 times less return on investment than Cummins. In addition to that, ScanSource is 1.86 times more volatile than Cummins. It trades about 0.14 of its total potential returns per unit of risk. Cummins is currently generating about 0.36 per unit of volatility. If you would invest 26,588 in Cummins on September 12, 2024 and sell it today you would earn a total of 9,222 from holding Cummins or generate 34.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.46% |
| Values | Daily Returns |
ScanSource vs. Cummins
Performance |
| Timeline |
| ScanSource |
| Cummins |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Strong
ScanSource and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ScanSource and Cummins
The main advantage of trading using opposite ScanSource and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ScanSource 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 ScanSource 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.| Cummins vs. PARKEN Sport Entertainment | Cummins vs. Compagnie Plastic Omnium | Cummins vs. Jacquet Metal Service | Cummins vs. Aluminum 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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