Correlation Between Cummins and Next Hydrogen

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

By analyzing existing cross correlation between Cummins and Next Hydrogen Solutions, you can compare the effects of market volatilities on Cummins and Next Hydrogen 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 Next Hydrogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and Next Hydrogen.

Diversification Opportunities for Cummins and Next Hydrogen

-0.11

Correlation Coefficient

Cummins  Next Hydrogen

Good diversification

The 3 months correlation between Cummins and Next is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Next Hydrogen Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Hydrogen Solutions 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 Next Hydrogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Hydrogen Solutions has no effect on the direction of Cummins i.e., Cummins and Next Hydrogen go up and down completely randomly.

Pair Corralation between Cummins and Next Hydrogen

Considering the 90-day investment horizon Cummins is expected to generate 5.33 times less return on investment than Next Hydrogen. But when comparing it to its historical volatility, Cummins is 11.97 times less risky than Next Hydrogen. It trades about 0.13 of its potential returns per unit of risk. Next Hydrogen Solutions is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  48.00  in Next Hydrogen Solutions on September 12, 2024 and sell it today you would lose (18.00) from holding Next Hydrogen Solutions or give up 37.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Cummins  vs.  Next Hydrogen Solutions

Cummins

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak primary indicators, Cummins demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Next Hydrogen Solutions

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Next Hydrogen Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Next Hydrogen reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cummins and Next Hydrogen

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

The idea behind Cummins and Next Hydrogen Solutions 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .