Correlation Between Spectrum Brands and Timken

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

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

Diversification Opportunities for Spectrum Brands and Timken

0.43

Correlation Coefficient

Spectrum Brands  Timken

Very weak diversification

The 3 months correlation between Spectrum and Timken is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Brands Holdings and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and Spectrum Brands 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 Spectrum Brands Holdings 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 Spectrum Brands i.e., Spectrum Brands and Timken go up and down completely randomly.

Pair Corralation between Spectrum Brands and Timken

Considering the 90-day investment horizon Spectrum Brands Holdings is expected to generate 0.9 times more return on investment than Timken. However, Spectrum Brands Holdings is 1.11 times less risky than Timken. It trades about 0.04 of its potential returns per unit of risk. Timken Company is currently generating about 0.0 per unit of risk. If you would invest  6,408  in Spectrum Brands Holdings on October 24, 2024 and sell it today you would earn a total of  2,149  from holding Spectrum Brands Holdings or generate 33.54% return on investment over 90 days.

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

Spectrum Brands Holdings  vs.  Timken Company

Spectrum Brands Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spectrum Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Spectrum Brands 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 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 Spectrum Brands and Timken

The main advantage of trading using opposite Spectrum Brands and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spectrum Brands 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 Spectrum Brands Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.