Correlation Between Freedom Holding and Cummins

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

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

Diversification Opportunities for Freedom Holding and Cummins

0.87

Correlation Coefficient

Freedom Holding  Cummins

Very poor diversification

The 3 months correlation between Freedom and Cummins is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Holding Corp and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Freedom Holding 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 Freedom Holding Corp 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 Freedom Holding i.e., Freedom Holding and Cummins go up and down completely randomly.

Pair Corralation between Freedom Holding and Cummins

Given the investment horizon of 90 days Freedom Holding is expected to generate 1.07 times less return on investment than Cummins. In addition to that, Freedom Holding is 1.03 times more volatile than Cummins. It trades about 0.22 of its total potential returns per unit of risk. Cummins is currently generating about 0.25 per unit of volatility. If you would invest  32,997  in Cummins on August 24, 2024 and sell it today you would earn a total of  3,889  from holding Cummins or generate 11.79% return on investment over 90 days.

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

Freedom Holding Corp  vs.  Cummins

Freedom Holding Corp

Risk-Adjusted Performance

18 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Holding Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Freedom Holding exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cummins

Risk-Adjusted Performance

13 of 100

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 weak primary indicators, Cummins demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Freedom Holding and Cummins

The main advantage of trading using opposite Freedom Holding and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Holding 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 Freedom Holding Corp 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.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.