Correlation Between KLA Tencor and Timken

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

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

Diversification Opportunities for KLA Tencor and Timken

0.56

Correlation Coefficient

KLA Tencor  Timken

Very weak diversification

The 3 months correlation between KLA and Timken is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and KLA Tencor 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 KLA Tencor 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 KLA Tencor i.e., KLA Tencor and Timken go up and down completely randomly.

Pair Corralation between KLA Tencor and Timken

Given the investment horizon of 90 days KLA Tencor is expected to under-perform the Timken. In addition to that, KLA Tencor is 1.04 times more volatile than Timken Company. It trades about -0.19 of its total potential returns per unit of risk. Timken Company is currently generating about -0.06 per unit of volatility. If you would invest  8,427  in Timken Company on September 13, 2024 and sell it today you would lose (697.00) from holding Timken Company or give up 8.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

KLA Tencor  vs.  Timken Company

KLA Tencor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLA Tencor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 relatively invariable forward-looking signals, Timken is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with KLA Tencor and Timken

The main advantage of trading using opposite KLA Tencor and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KLA Tencor 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 KLA Tencor 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.