Correlation Between Cummins and KONE Oyj

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

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

Diversification Opportunities for Cummins and KONE Oyj

-0.33

Correlation Coefficient

Cummins  KONE Oyj

Very good diversification

The 3 months correlation between Cummins and KONE is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and KONE Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KONE Oyj 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 KONE Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KONE Oyj has no effect on the direction of Cummins i.e., Cummins and KONE Oyj go up and down completely randomly.

Pair Corralation between Cummins and KONE Oyj

Considering the 90-day investment horizon Cummins is expected to under-perform the KONE Oyj. In addition to that, Cummins is 1.5 times more volatile than KONE Oyj. It trades about -0.06 of its total potential returns per unit of risk. KONE Oyj is currently generating about 0.12 per unit of volatility. If you would invest  5,175  in KONE Oyj on December 20, 2024 and sell it today you would earn a total of  438.00  from holding KONE Oyj or generate 8.46% return on investment over 90 days.

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

Cummins  vs.  KONE Oyj

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.

KONE Oyj

Risk-Adjusted Performance

OK

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

Pair Trading with Cummins and KONE Oyj

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

The idea behind Cummins and KONE Oyj 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.