Correlation Between AB SKF and Timken

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

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

Diversification Opportunities for AB SKF and Timken

0.35

Correlation Coefficient

AB SKF  Timken

Weak diversification

The 3 months correlation between SKFRY and Timken is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding AB SKF and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and AB SKF 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 AB SKF 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 AB SKF i.e., AB SKF and Timken go up and down completely randomly.

Pair Corralation between AB SKF and Timken

Assuming the 90 days horizon AB SKF is expected to generate 1.35 times more return on investment than Timken. However, AB SKF is 1.35 times more volatile than Timken Company. It trades about 0.09 of its potential returns per unit of risk. Timken Company is currently generating about 0.05 per unit of risk. If you would invest  1,891  in AB SKF on December 28, 2024 and sell it today you would earn a total of  232.00  from holding AB SKF or generate 12.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

AB SKF  vs.  Timken Company

AB SKF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, AB SKF showed solid returns over the last few months and may actually be approaching a breakup point.

Timken Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Timken Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 AB SKF and Timken

The main advantage of trading using opposite AB SKF and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AB SKF 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 AB SKF 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.