Correlation Between Timken and AMREP

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

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

Diversification Opportunities for Timken and AMREP

-0.55

Correlation Coefficient

Timken  AMREP

Excellent diversification

The 3 months correlation between Timken and AMREP is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and AMREP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMREP and Timken 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 Timken Company are associated (or correlated) with AMREP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMREP has no effect on the direction of Timken i.e., Timken and AMREP go up and down completely randomly.

Pair Corralation between Timken and AMREP

Considering the 90-day investment horizon Timken Company is expected to under-perform the AMREP. But the stock apears to be less risky and, when comparing its historical volatility, Timken Company is 1.71 times less risky than AMREP. The stock trades about -0.01 of its potential returns per unit of risk. The AMREP is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,200  in AMREP on September 13, 2024 and sell it today you would earn a total of  1,389  from holding AMREP or generate 63.14% return on investment over 90 days.

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

Timken Company  vs.  AMREP

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 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.

AMREP

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AMREP are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, AMREP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Timken and AMREP

The main advantage of trading using opposite Timken and AMREP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken position performs unexpectedly, AMREP 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 AMREP will offset losses from the drop in AMREP's long position.

The idea behind Timken Company and AMREP 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.