Correlation Between PACCAR and Timken

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

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

Diversification Opportunities for PACCAR and Timken

-0.68

Correlation Coefficient

PACCAR  Timken

Excellent diversification

The 3 months correlation between PACCAR and Timken is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and PACCAR 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 PACCAR Inc 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 PACCAR i.e., PACCAR and Timken go up and down completely randomly.

Pair Corralation between PACCAR and Timken

Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.91 times more return on investment than Timken. However, PACCAR Inc is 1.1 times less risky than Timken. It trades about 0.03 of its potential returns per unit of risk. Timken Company is currently generating about 0.0 per unit of risk. If you would invest  9,664  in PACCAR Inc on September 20, 2024 and sell it today you would earn a total of  1,077  from holding PACCAR Inc or generate 11.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

PACCAR Inc  vs.  Timken Company

PACCAR Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest unsteady performance, the Stock's forward-looking signals remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with PACCAR and Timken

The main advantage of trading using opposite PACCAR and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR 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 PACCAR Inc 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.