Correlation Between Servotronics and Timken

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

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

Diversification Opportunities for Servotronics and Timken

0.61

Correlation Coefficient

Servotronics  Timken

Poor diversification

The 3 months correlation between Servotronics and Timken is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Servotronics and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and Servotronics 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 Servotronics 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 Servotronics i.e., Servotronics and Timken go up and down completely randomly.

Pair Corralation between Servotronics and Timken

Considering the 90-day investment horizon Servotronics is expected to generate 1.15 times more return on investment than Timken. However, Servotronics is 1.15 times more volatile than Timken Company. It trades about -0.06 of its potential returns per unit of risk. Timken Company is currently generating about -0.28 per unit of risk. If you would invest  1,107  in Servotronics on September 26, 2024 and sell it today you would lose (23.00) from holding Servotronics or give up 2.08% of portfolio value over 90 days.

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

Servotronics  vs.  Timken Company

Servotronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Servotronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private 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 uncertain performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Servotronics and Timken

The main advantage of trading using opposite Servotronics and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Servotronics 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 Servotronics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.