Correlation Between Franklin Electric and Cummins

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

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

Diversification Opportunities for Franklin Electric and Cummins

0.54

Correlation Coefficient

Franklin Electric  Cummins

Very weak diversification

The 3 months correlation between Franklin and Cummins is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Electric Co and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Franklin Electric 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 Franklin Electric Co are associated (or correlated) with Cummins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cummins has no effect on the direction of Franklin Electric i.e., Franklin Electric and Cummins go up and down completely randomly.

Pair Corralation between Franklin Electric and Cummins

Given the investment horizon of 90 days Franklin Electric Co is expected to under-perform the Cummins. In addition to that, Franklin Electric is 1.21 times more volatile than Cummins. It trades about -0.05 of its total potential returns per unit of risk. Cummins is currently generating about 0.1 per unit of volatility. If you would invest  32,219  in Cummins on September 30, 2024 and sell it today you would earn a total of  2,896  from holding Cummins or generate 8.99% return on investment over 90 days.

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

Franklin Electric Co  vs.  Cummins

Franklin Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Franklin Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Cummins

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal primary indicators, Cummins may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Franklin Electric and Cummins

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

The idea behind Franklin Electric Co and Cummins 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.