Correlation Between Cummins and Taylor Devices

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

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

Diversification Opportunities for Cummins and Taylor Devices

-0.69

Correlation Coefficient

Cummins  Taylor Devices

Excellent diversification

The 3 months correlation between Cummins and Taylor is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Taylor Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taylor Devices 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 Taylor Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taylor Devices has no effect on the direction of Cummins i.e., Cummins and Taylor Devices go up and down completely randomly.

Pair Corralation between Cummins and Taylor Devices

Considering the 90-day investment horizon Cummins is expected to generate 0.34 times more return on investment than Taylor Devices. However, Cummins is 2.92 times less risky than Taylor Devices. It trades about 0.22 of its potential returns per unit of risk. Taylor Devices is currently generating about -0.02 per unit of risk. If you would invest  30,282  in Cummins on September 2, 2024 and sell it today you would earn a total of  7,222  from holding Cummins or generate 23.85% return on investment over 90 days.

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

Cummins  vs.  Taylor Devices

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.

Taylor Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taylor Devices has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Cummins and Taylor Devices

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

The idea behind Cummins and Taylor Devices 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.