Correlation Between Cummins and Sandvik AB

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

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

Diversification Opportunities for Cummins and Sandvik AB

-0.58

Correlation Coefficient

Cummins  Sandvik AB

Excellent diversification

The 3 months correlation between Cummins and Sandvik is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Sandvik AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandvik AB 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 Sandvik AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandvik AB has no effect on the direction of Cummins i.e., Cummins and Sandvik AB go up and down completely randomly.

Pair Corralation between Cummins and Sandvik AB

Considering the 90-day investment horizon Cummins is expected to generate 0.83 times more return on investment than Sandvik AB. However, Cummins is 1.2 times less risky than Sandvik AB. It trades about 0.21 of its potential returns per unit of risk. Sandvik AB is currently generating about -0.03 per unit of risk. If you would invest  29,958  in Cummins on September 14, 2024 and sell it today you would earn a total of  6,789  from holding Cummins or generate 22.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Cummins  vs.  Sandvik AB

Cummins

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal primary indicators, Cummins demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Sandvik AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandvik AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Sandvik AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cummins and Sandvik AB

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

The idea behind Cummins and Sandvik AB 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.