Correlation Between Cummins India and Diamond Power

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

By analyzing existing cross correlation between Cummins India Limited and Diamond Power Infrastructure, you can compare the effects of market volatilities on Cummins India and Diamond Power 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 India with a short position of Diamond Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins India and Diamond Power.

Diversification Opportunities for Cummins India and Diamond Power

-0.04

Correlation Coefficient

Cummins India  Diamond Power

Good diversification

The 3 months correlation between Cummins and Diamond is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cummins India Limited and Diamond Power Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Power Infras and Cummins India 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 India Limited are associated (or correlated) with Diamond Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Power Infras has no effect on the direction of Cummins India i.e., Cummins India and Diamond Power go up and down completely randomly.

Pair Corralation between Cummins India and Diamond Power

Assuming the 90 days trading horizon Cummins India Limited is expected to under-perform the Diamond Power. But the stock apears to be less risky and, when comparing its historical volatility, Cummins India Limited is 64.49 times less risky than Diamond Power. The stock trades about -0.12 of its potential returns per unit of risk. The Diamond Power Infrastructure is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  15,565  in Diamond Power Infrastructure on October 25, 2024 and sell it today you would lose (2,820) from holding Diamond Power Infrastructure or give up 18.12% of portfolio value over 90 days.

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

Cummins India Limited  vs.  Diamond Power Infrastructure

Cummins India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cummins India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Diamond Power Infras

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Power Infrastructure are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Diamond Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cummins India and Diamond Power

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

The idea behind Cummins India Limited and Diamond Power Infrastructure 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.