Correlation Between GE Aerospace and CUMMINS

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

By analyzing existing cross correlation between GE Aerospace and CUMMINS INC 7125, you can compare the effects of market volatilities on GE Aerospace 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 GE Aerospace with a short position of CUMMINS. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Aerospace and CUMMINS.

Diversification Opportunities for GE Aerospace and CUMMINS

0.41

Correlation Coefficient

GE Aerospace  CUMMINS

Very weak diversification

The 3 months correlation between GE Aerospace and CUMMINS is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and CUMMINS INC 7125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CUMMINS INC 7125 and GE Aerospace 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 GE Aerospace 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 INC 7125 has no effect on the direction of GE Aerospace i.e., GE Aerospace and CUMMINS go up and down completely randomly.

Pair Corralation between GE Aerospace and CUMMINS

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 3.41 times more return on investment than CUMMINS. However, GE Aerospace is 3.41 times more volatile than CUMMINS INC 7125. It trades about 0.1 of its potential returns per unit of risk. CUMMINS INC 7125 is currently generating about -0.05 per unit of risk. If you would invest  16,397  in GE Aerospace on September 2, 2024 and sell it today you would earn a total of  1,819  from holding GE Aerospace or generate 11.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	73.44%
Values	Daily Returns

GE Aerospace  vs.  CUMMINS INC 7125

GE Aerospace

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CUMMINS INC 7125

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CUMMINS INC 7125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CUMMINS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GE Aerospace and CUMMINS

The main advantage of trading using opposite GE Aerospace and CUMMINS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace 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's long position.

The idea behind GE Aerospace and CUMMINS INC 7125 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.