Correlation Between Cummins and Alfa Laval

Can any of the company-specific risk be diversified away by investing in both Cummins and Alfa Laval 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 Alfa Laval into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cummins and Alfa Laval AB, you can compare the effects of market volatilities on Cummins and Alfa Laval 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 Alfa Laval. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and Alfa Laval.

Diversification Opportunities for Cummins and Alfa Laval

-0.59

Correlation Coefficient

Cummins  Alfa Laval

Excellent diversification

The 3 months correlation between Cummins and Alfa is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Alfa Laval AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Laval AB 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 Alfa Laval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Laval AB has no effect on the direction of Cummins i.e., Cummins and Alfa Laval go up and down completely randomly.

Pair Corralation between Cummins and Alfa Laval

Considering the 90-day investment horizon Cummins is expected to generate 0.97 times more return on investment than Alfa Laval. However, Cummins is 1.03 times less risky than Alfa Laval. It trades about 0.11 of its potential returns per unit of risk. Alfa Laval AB is currently generating about 0.04 per unit of risk. If you would invest  20,794  in Cummins on September 14, 2024 and sell it today you would earn a total of  16,263  from holding Cummins or generate 78.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cummins  vs.  Alfa Laval AB

Cummins

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal primary indicators, Cummins demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Alfa Laval AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfa Laval AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Alfa Laval is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cummins and Alfa Laval

The main advantage of trading using opposite Cummins and Alfa Laval positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, Alfa Laval 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 Alfa Laval will offset losses from the drop in Alfa Laval's long position.

The idea behind Cummins and Alfa Laval AB 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 CEOs Directory module to screen CEOs from public companies around the world.