Correlation Between Sony and Cummins

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

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

Diversification Opportunities for Sony and Cummins

0.61

Correlation Coefficient

Sony  Cummins

Poor diversification

The 3 months correlation between Sony and Cummins is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sony Group and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Sony 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 Sony Group 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 Sony i.e., Sony and Cummins go up and down completely randomly.

Pair Corralation between Sony and Cummins

Assuming the 90 days trading horizon Sony Group is expected to generate 25.76 times more return on investment than Cummins. However, Sony is 25.76 times more volatile than Cummins. It trades about 0.1 of its potential returns per unit of risk. Cummins is currently generating about 0.07 per unit of risk. If you would invest  8,606  in Sony Group on October 9, 2024 and sell it today you would earn a total of  4,234  from holding Sony Group or generate 49.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.59%
Values	Daily Returns

Sony Group  vs.  Cummins

Sony Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Sony sustained solid returns over the last few months and may actually be approaching a breakup point.

Cummins

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Cummins sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony and Cummins

The main advantage of trading using opposite Sony and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sony 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 Sony Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.