Correlation Between Loandepot and Timken

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

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

Diversification Opportunities for Loandepot and Timken

-0.08

Correlation Coefficient

Loandepot  Timken

Good diversification

The 3 months correlation between Loandepot and Timken is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Loandepot and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and Loandepot 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 Loandepot 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 Loandepot i.e., Loandepot and Timken go up and down completely randomly.

Pair Corralation between Loandepot and Timken

Considering the 90-day investment horizon Loandepot is expected to under-perform the Timken. In addition to that, Loandepot is 1.82 times more volatile than Timken Company. It trades about -0.1 of its total potential returns per unit of risk. Timken Company is currently generating about -0.03 per unit of volatility. If you would invest  8,026  in Timken Company on September 15, 2024 and sell it today you would lose (476.00) from holding Timken Company or give up 5.93% of portfolio value over 90 days.

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

Loandepot  vs.  Timken Company

Loandepot

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 Loandepot and Timken

The main advantage of trading using opposite Loandepot and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Loandepot 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 Loandepot 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.