Correlation Between SIDETRADE and Cummins

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

By analyzing existing cross correlation between SIDETRADE EO 1 and Cummins, you can compare the effects of market volatilities on SIDETRADE 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 SIDETRADE with a short position of Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of SIDETRADE and Cummins.

Diversification Opportunities for SIDETRADE and Cummins

0.41

Correlation Coefficient

SIDETRADE  Cummins

Very weak diversification

The 3 months correlation between SIDETRADE and Cummins is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding SIDETRADE EO 1 and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and SIDETRADE 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 SIDETRADE EO 1 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 SIDETRADE i.e., SIDETRADE and Cummins go up and down completely randomly.

Pair Corralation between SIDETRADE and Cummins

Assuming the 90 days horizon SIDETRADE is expected to generate 1.22 times less return on investment than Cummins. But when comparing it to its historical volatility, SIDETRADE EO 1 is 1.04 times less risky than Cummins. It trades about 0.1 of its potential returns per unit of risk. Cummins is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  23,986  in Cummins on February 25, 2024 and sell it today you would earn a total of  2,534  from holding Cummins or generate 10.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

SIDETRADE EO 1  vs.  Cummins

SIDETRADE EO 1

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIDETRADE EO 1 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SIDETRADE may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Cummins

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cummins may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with SIDETRADE and Cummins

The main advantage of trading using opposite SIDETRADE and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIDETRADE 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 SIDETRADE EO 1 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.