Correlation Between Designer Brands and Timken

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

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

Diversification Opportunities for Designer Brands and Timken

-0.13

Correlation Coefficient

Designer Brands  Timken

Good diversification

The 3 months correlation between Designer and Timken is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and Designer Brands 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 Designer Brands 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 Designer Brands i.e., Designer Brands and Timken go up and down completely randomly.

Pair Corralation between Designer Brands and Timken

Considering the 90-day investment horizon Designer Brands is expected to under-perform the Timken. In addition to that, Designer Brands is 2.48 times more volatile than Timken Company. It trades about -0.15 of its total potential returns per unit of risk. Timken Company is currently generating about 0.07 per unit of volatility. If you would invest  7,046  in Timken Company on December 19, 2024 and sell it today you would earn a total of  442.50  from holding Timken Company or generate 6.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Designer Brands  vs.  Timken Company

Designer Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Designer Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Timken Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Timken Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking signals, Timken may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Designer Brands and Timken

The main advantage of trading using opposite Designer Brands and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands 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 Designer Brands 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.