Correlation Between Barnes and Timken

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

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

Diversification Opportunities for Barnes and Timken

-0.31

Correlation Coefficient

Barnes  Timken

Very good diversification

The 3 months correlation between Barnes and Timken is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Barnes Group and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and Barnes 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 Barnes Group are associated (or correlated) with Timken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Timken Company has no effect on the direction of Barnes i.e., Barnes and Timken go up and down completely randomly.

Pair Corralation between Barnes and Timken

Taking into account the 90-day investment horizon Barnes Group is expected to generate 0.06 times more return on investment than Timken. However, Barnes Group is 17.56 times less risky than Timken. It trades about 0.24 of its potential returns per unit of risk. Timken Company is currently generating about -0.36 per unit of risk. If you would invest  4,702  in Barnes Group on October 8, 2024 and sell it today you would earn a total of  16.00  from holding Barnes Group or generate 0.34% return on investment over 90 days.

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

Barnes Group  vs.  Timken Company

Barnes Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barnes Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Barnes is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Timken Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's forward-looking signals remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Barnes and Timken

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

The idea behind Barnes Group and Timken Company 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.