Correlation Between Makita Corp and Timken

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

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

Diversification Opportunities for Makita Corp and Timken

-0.65

Correlation Coefficient

Makita Corp  Timken

Excellent diversification

The 3 months correlation between Makita and Timken is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Makita Corp and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and Makita Corp 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 Makita Corp 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 Makita Corp i.e., Makita Corp and Timken go up and down completely randomly.

Pair Corralation between Makita Corp and Timken

If you would invest  0.00  in Makita Corp on September 3, 2024 and sell it today you would earn a total of  0.00  from holding Makita Corp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Makita Corp  vs.  Timken Company

Makita Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Makita Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Makita Corp is not utilizing all of its potentials. The current 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 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 Makita Corp and Timken

The main advantage of trading using opposite Makita Corp and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Makita Corp 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 Makita Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.