Correlation Between Cummins and Ushio

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

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

Diversification Opportunities for Cummins and Ushio

0.47

Correlation Coefficient

Cummins  Ushio

Very weak diversification

The 3 months correlation between Cummins and Ushio is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Ushio Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ushio Inc 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 Ushio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ushio Inc has no effect on the direction of Cummins i.e., Cummins and Ushio go up and down completely randomly.

Pair Corralation between Cummins and Ushio

Considering the 90-day investment horizon Cummins is expected to generate 0.71 times more return on investment than Ushio. However, Cummins is 1.4 times less risky than Ushio. It trades about 0.11 of its potential returns per unit of risk. Ushio Inc is currently generating about 0.05 per unit of risk. If you would invest  22,491  in Cummins on September 12, 2024 and sell it today you would earn a total of  15,281  from holding Cummins or generate 67.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	49.24%
Values	Daily Returns

Cummins  vs.  Ushio Inc

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.

Ushio Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ushio Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Ushio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cummins and Ushio

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

The idea behind Cummins and Ushio Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.