Correlation Between Cummins and Nordex SE

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

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

Diversification Opportunities for Cummins and Nordex SE

0.25

Correlation Coefficient

Cummins  Nordex SE

Modest diversification

The 3 months correlation between Cummins and Nordex is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Nordex SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordex SE 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 Nordex SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordex SE has no effect on the direction of Cummins i.e., Cummins and Nordex SE go up and down completely randomly.

Pair Corralation between Cummins and Nordex SE

Considering the 90-day investment horizon Cummins is expected to under-perform the Nordex SE. But the stock apears to be less risky and, when comparing its historical volatility, Cummins is 1.39 times less risky than Nordex SE. The stock trades about -0.01 of its potential returns per unit of risk. The Nordex SE is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,166  in Nordex SE on December 3, 2024 and sell it today you would earn a total of  179.00  from holding Nordex SE or generate 15.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Cummins  vs.  Nordex SE

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.

Nordex SE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nordex SE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nordex SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cummins and Nordex SE

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

The idea behind Cummins and Nordex SE 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.