Correlation Between Rockwell Automation and Cummins

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

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

Diversification Opportunities for Rockwell Automation and Cummins

0.29

Correlation Coefficient

Rockwell Automation  Cummins

Modest diversification

The 3 months correlation between Rockwell and Cummins is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Rockwell Automation and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Rockwell Automation 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 Rockwell Automation 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 Rockwell Automation i.e., Rockwell Automation and Cummins go up and down completely randomly.

Pair Corralation between Rockwell Automation and Cummins

Considering the 90-day investment horizon Rockwell Automation is expected to generate 1.18 times more return on investment than Cummins. However, Rockwell Automation is 1.18 times more volatile than Cummins. It trades about -0.12 of its potential returns per unit of risk. Cummins is currently generating about -0.2 per unit of risk. If you would invest  28,023  in Rockwell Automation on February 2, 2024 and sell it today you would lose (1,103) from holding Rockwell Automation or give up 3.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Rockwell Automation  vs.  Cummins

Rockwell Automation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rockwell Automation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Rockwell Automation is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Cummins

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal primary indicators, Cummins demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rockwell Automation and Cummins

The main advantage of trading using opposite Rockwell Automation and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rockwell Automation 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 Rockwell Automation 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.