Correlation Between Xylem and Cummins

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

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

Diversification Opportunities for Xylem and Cummins

0.84

Correlation Coefficient

Xylem  Cummins

Very poor diversification

The 3 months correlation between Xylem and Cummins is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Xylem Inc and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins and Xylem 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 Xylem Inc 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 Xylem i.e., Xylem and Cummins go up and down completely randomly.

Pair Corralation between Xylem and Cummins

Considering the 90-day investment horizon Xylem Inc is expected to generate 1.49 times more return on investment than Cummins. However, Xylem is 1.49 times more volatile than Cummins. It trades about 0.16 of its potential returns per unit of risk. Cummins is currently generating about 0.19 per unit of risk. If you would invest  12,666  in Xylem Inc on May 6, 2025 and sell it today you would earn a total of  1,552  from holding Xylem Inc or generate 12.25% return on investment over 90 days.

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

Xylem Inc  vs.  Cummins

Xylem Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xylem Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Xylem disclosed solid returns over the last few months and may actually be approaching a breakup point.

Cummins

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cummins are ranked lower than 14 (%) 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 Xylem and Cummins

The main advantage of trading using opposite Xylem and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xylem 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 Xylem Inc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.