Correlation Between Weichai Power and Cummins

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

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

Diversification Opportunities for Weichai Power and Cummins

0.0

Correlation Coefficient

Weichai Power  Cummins

Pay attention - limited upside

The 3 months correlation between Weichai and Cummins is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Power and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Weichai Power 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 Weichai Power 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 Weichai Power i.e., Weichai Power and Cummins go up and down completely randomly.

Pair Corralation between Weichai Power and Cummins

If you would invest (100.00) in Weichai Power on December 29, 2024 and sell it today you would earn a total of  100.00  from holding Weichai Power or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Weichai Power  vs.  Cummins

Weichai Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Weichai Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Weichai Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 Weichai Power and Cummins

The main advantage of trading using opposite Weichai Power and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Weichai Power 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 Weichai Power 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.