Correlation Between Cummins and Barnes

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

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

Diversification Opportunities for Cummins and Barnes

0.64

Correlation Coefficient

Cummins  Barnes

Poor diversification

The 3 months correlation between Cummins and Barnes is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Barnes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes Group 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 Barnes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Group has no effect on the direction of Cummins i.e., Cummins and Barnes go up and down completely randomly.

Pair Corralation between Cummins and Barnes

Considering the 90-day investment horizon Cummins is expected to generate 0.33 times more return on investment than Barnes. However, Cummins is 3.06 times less risky than Barnes. It trades about 0.09 of its potential returns per unit of risk. Barnes Group is currently generating about -0.01 per unit of risk. If you would invest  28,776  in Cummins on January 25, 2024 and sell it today you would earn a total of  494.00  from holding Cummins or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Cummins  vs.  Barnes Group

Cummins

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent primary indicators, Cummins demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Barnes Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barnes Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental drivers, Barnes sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cummins and Barnes

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

The idea behind Cummins and Barnes Group 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.