Correlation Between Summit Materials and Timken

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

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

Diversification Opportunities for Summit Materials and Timken

0.36

Correlation Coefficient

Summit Materials  Timken

Weak diversification

The 3 months correlation between Summit and Timken is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and Timken go up and down completely randomly.

Pair Corralation between Summit Materials and Timken

Considering the 90-day investment horizon Summit Materials is expected to generate 0.22 times more return on investment than Timken. However, Summit Materials is 4.57 times less risky than Timken. It trades about 0.32 of its potential returns per unit of risk. Timken Company is currently generating about 0.07 per unit of risk. If you would invest  5,035  in Summit Materials on December 19, 2024 and sell it today you would earn a total of  214.00  from holding Summit Materials or generate 4.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	58.33%
Values	Daily Returns

Summit Materials  vs.  Timken Company

Summit Materials

Risk-Adjusted Performance

Solid

Over the last 90 days Summit Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very unfluctuating basic indicators, Summit Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Timken Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Timken Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking signals, Timken may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Summit Materials and Timken

The main advantage of trading using opposite Summit Materials and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.