Correlation Between Pentair PLC and Cummins

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

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

Diversification Opportunities for Pentair PLC and Cummins

0.62

Correlation Coefficient

Pentair PLC  Cummins

Poor diversification

The 3 months correlation between Pentair and Cummins is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Pentair PLC and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Pentair PLC 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 Pentair PLC 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 Pentair PLC i.e., Pentair PLC and Cummins go up and down completely randomly.

Pair Corralation between Pentair PLC and Cummins

Considering the 90-day investment horizon Pentair PLC is expected to under-perform the Cummins. But the stock apears to be less risky and, when comparing its historical volatility, Pentair PLC is 1.24 times less risky than Cummins. The stock trades about -0.12 of its potential returns per unit of risk. The Cummins is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  34,676  in Cummins on December 29, 2024 and sell it today you would lose (2,332) from holding Cummins or give up 6.73% of portfolio value over 90 days.

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

Pentair PLC  vs.  Cummins

Pentair PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pentair PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

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.

Pair Trading with Pentair PLC and Cummins

The main advantage of trading using opposite Pentair PLC and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pentair PLC 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 Pentair PLC 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.

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.