Correlation Between East Africa and Timken

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

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

Diversification Opportunities for East Africa and Timken

0.0

Correlation Coefficient

East Africa  Timken

Pay attention - limited upside

The 3 months correlation between East and Timken is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and East Africa 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 East Africa Metals 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 East Africa i.e., East Africa and Timken go up and down completely randomly.

Pair Corralation between East Africa and Timken

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	Flat
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

East Africa Metals  vs.  Timken Company

East Africa Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, East Africa is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 East Africa and Timken

The main advantage of trading using opposite East Africa and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Africa 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 East Africa Metals 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.