Correlation Between Cummins and Amaero International

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

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

Diversification Opportunities for Cummins and Amaero International

0.55

Correlation Coefficient

Cummins  Amaero International

Very weak diversification

The 3 months correlation between Cummins and Amaero is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Amaero International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amaero International 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 Amaero International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amaero International has no effect on the direction of Cummins i.e., Cummins and Amaero International go up and down completely randomly.

Pair Corralation between Cummins and Amaero International

Considering the 90-day investment horizon Cummins is expected to under-perform the Amaero International. But the stock apears to be less risky and, when comparing its historical volatility, Cummins is 4.92 times less risky than Amaero International. The stock trades about -0.07 of its potential returns per unit of risk. The Amaero International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  18.00  in Amaero International on December 28, 2024 and sell it today you would earn a total of  0.00  from holding Amaero International or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Cummins  vs.  Amaero International

Cummins

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cummins has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Amaero International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Amaero International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Amaero International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cummins and Amaero International

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

The idea behind Cummins and Amaero International 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.

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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.