Correlation Between Cummins and General Electric

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

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Can any of the company-specific risk be diversified away by investing in both Cummins and General Electric at the same time? Although using correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combing Cummins and General Electric into the same portfolio which is an essential part of fundamental portfolio management process.

Diversification Opportunities for Cummins and General Electric

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Good diversification

The 3 months correlation between Cummins and General is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Cummins Inc and General Electric Company in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of Cummins i.e. Cummins and General Electric go up and down completely randomly.

Pair Corralation between Cummins and General Electric

Considering 30-days investment horizon, Cummins is expected to generate 0.79 times more return on investment than General Electric. However, Cummins is 1.27 times less risky than General Electric. It trades about 0.11 of its potential returns per unit of risk. General Electric is currently generating about 0.02 per unit of risk. If you would invest  13,927  in Cummins on May 6, 2020 and sell it today you would earn a total of  4,074  from holding Cummins or generate 29.25% return on investment over 30 days.
Time Period3 Months [change]
DirectionMoves Against 
ValuesDaily Returns

Cummins Inc  vs.  General Electric Company

 Performance (%) 

Cummins Risk-Adjusted Performance

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 7 (%) of all global equities and portfolios over the last 30 days. Despite nearly abnormal fundamental indicators, Cummins layed out solid returns over the last few months and may actually be approaching a breakup point.
General Electric 

General Electric Risk-Adjusted Performance

Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 1 (%) of all global equities and portfolios over the last 30 days. In spite of rather weak fundamental drivers, General Electric may actually be approaching a critical reversion point that can send shares even higher in July 2020.

Cummins and General Electric Volatility Contrast

 Predicted Return Density 
Check out your portfolio center. Please also try Price Ceiling Movement module to calculate and plot price ceiling movement for different equity instruments.

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