Correlation Between Cummins and Ametek

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Can any of the company-specific risk be diversified away by investing in both Cummins and Ametek 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 Ametek into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cummins and Ametek Inc, you can compare the effects of market volatilities on Cummins and Ametek 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 Ametek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cummins and Ametek.

Diversification Opportunities for Cummins and Ametek

0.58
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Cummins and Ametek is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Ametek Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ametek 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 Ametek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ametek Inc has no effect on the direction of Cummins i.e., Cummins and Ametek go up and down completely randomly.

Pair Corralation between Cummins and Ametek

Considering the 90-day investment horizon Cummins is expected to generate 1.45 times more return on investment than Ametek. However, Cummins is 1.45 times more volatile than Ametek Inc. It trades about 0.15 of its potential returns per unit of risk. Ametek Inc is currently generating about 0.02 per unit of risk. If you would invest  27,694  in Cummins on April 22, 2024 and sell it today you would earn a total of  1,421  from holding Cummins or generate 5.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Cummins  vs.  Ametek Inc

 Performance 
       Timeline  
Cummins 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, Cummins is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.
Ametek Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Ametek Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Ametek is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cummins and Ametek Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cummins and Ametek

The main advantage of trading using opposite Cummins and Ametek positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cummins position performs unexpectedly, Ametek 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 Ametek will offset losses from the drop in Ametek's long position.
The idea behind Cummins and Ametek 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.
Check out your portfolio center.
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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