Correlation Between Cummins and T Rowe

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

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

Diversification Opportunities for Cummins and T Rowe

0.69

Correlation Coefficient

Cummins  T Rowe

Poor diversification

The 3 months correlation between Cummins and RRTLX is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price 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 T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of Cummins i.e., Cummins and T Rowe go up and down completely randomly.

Pair Corralation between Cummins and T Rowe

Considering the 90-day investment horizon Cummins is expected to generate 4.25 times more return on investment than T Rowe. However, Cummins is 4.25 times more volatile than T Rowe Price. It trades about 0.07 of its potential returns per unit of risk. T Rowe Price is currently generating about 0.1 per unit of risk. If you would invest  21,926  in Cummins on December 4, 2024 and sell it today you would earn a total of  12,806  from holding Cummins or generate 58.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Cummins  vs.  T Rowe Price

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.

T Rowe Price

Risk-Adjusted Performance

Very Weak

Over the last 90 days T Rowe Price has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, T Rowe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cummins and T Rowe

The main advantage of trading using opposite Cummins and T Rowe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, T Rowe 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 T Rowe will offset losses from the drop in T Rowe's long position.

The idea behind Cummins and T Rowe Price 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.