Correlation Between Cummins and NGK Insulators

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

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

Diversification Opportunities for Cummins and NGK Insulators

-0.66

Correlation Coefficient

Cummins  NGK Insulators

Excellent diversification

The 3 months correlation between Cummins and NGK is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and NGK Insulators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGK Insulators 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 NGK Insulators. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGK Insulators has no effect on the direction of Cummins i.e., Cummins and NGK Insulators go up and down completely randomly.

Pair Corralation between Cummins and NGK Insulators

Considering the 90-day investment horizon Cummins is expected to under-perform the NGK Insulators. But the stock apears to be less risky and, when comparing its historical volatility, Cummins is 1.35 times less risky than NGK Insulators. The stock trades about -0.05 of its potential returns per unit of risk. The NGK Insulators is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,209  in NGK Insulators on December 27, 2024 and sell it today you would earn a total of  77.00  from holding NGK Insulators or generate 6.37% return on investment over 90 days.

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

Cummins  vs.  NGK Insulators

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 fairly strong primary indicators, Cummins is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

NGK Insulators

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NGK Insulators are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, NGK Insulators may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cummins and NGK Insulators

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

The idea behind Cummins and NGK Insulators 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.