Correlation Between Cummins and Broadwind Energy

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

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

Diversification Opportunities for Cummins and Broadwind Energy

-0.53

Correlation Coefficient

Cummins  Broadwind Energy

Excellent diversification

The 3 months correlation between Cummins and Broadwind is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Broadwind Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadwind Energy 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 Broadwind Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadwind Energy has no effect on the direction of Cummins i.e., Cummins and Broadwind Energy go up and down completely randomly.

Pair Corralation between Cummins and Broadwind Energy

Considering the 90-day investment horizon Cummins is expected to generate 3.62 times less return on investment than Broadwind Energy. But when comparing it to its historical volatility, Cummins is 5.06 times less risky than Broadwind Energy. It trades about 0.26 of its potential returns per unit of risk. Broadwind Energy is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  177.00  in Broadwind Energy on October 24, 2024 and sell it today you would earn a total of  26.00  from holding Broadwind Energy or generate 14.69% 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.  Broadwind Energy

Cummins

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal primary indicators, Cummins may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Broadwind Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Broadwind Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Broadwind Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cummins and Broadwind Energy

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

The idea behind Cummins and Broadwind Energy 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.