Correlation Between Cummins and Donaldson

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

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

Diversification Opportunities for Cummins and Donaldson

0.89

Correlation Coefficient

Cummins  Donaldson

Very poor diversification

The 3 months correlation between Cummins and Donaldson is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Cummins and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson 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 Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Cummins i.e., Cummins and Donaldson go up and down completely randomly.

Pair Corralation between Cummins and Donaldson

Considering the 90-day investment horizon Cummins is expected to generate 1.47 times more return on investment than Donaldson. However, Cummins is 1.47 times more volatile than Donaldson. It trades about 0.17 of its potential returns per unit of risk. Donaldson is currently generating about 0.1 per unit of risk. If you would invest  30,059  in Cummins on May 5, 2025 and sell it today you would earn a total of  5,525  from holding Cummins or generate 18.38% return on investment over 90 days.

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

Cummins  vs.  Donaldson

Cummins

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 13 (%) 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.

Donaldson

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Cummins and Donaldson

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

The idea behind Cummins and Donaldson 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.