Correlation Between Cummins and Gorman Rupp

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

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

Diversification Opportunities for Cummins and Gorman Rupp

0.88

Correlation Coefficient

Cummins  Gorman Rupp

Very poor diversification

The 3 months correlation between Cummins and Gorman is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Gorman Rupp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gorman Rupp and Cummins 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 are associated (or correlated) with Gorman Rupp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gorman Rupp has no effect on the direction of Cummins i.e., Cummins and Gorman Rupp go up and down completely randomly.

Pair Corralation between Cummins and Gorman Rupp

Considering the 90-day investment horizon Cummins is expected to generate 1.1 times less return on investment than Gorman Rupp. But when comparing it to its historical volatility, Cummins is 1.26 times less risky than Gorman Rupp. It trades about 0.07 of its potential returns per unit of risk. Gorman Rupp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,555  in Gorman Rupp on September 2, 2024 and sell it today you would earn a total of  1,705  from holding Gorman Rupp or generate 66.73% return on investment over 90 days.

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

Cummins  vs.  Gorman Rupp

Cummins

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal primary indicators, Cummins demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Gorman Rupp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gorman Rupp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Gorman Rupp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cummins and Gorman Rupp

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

The idea behind Cummins and Gorman Rupp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.