Correlation Between Timken and China Aircraft

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

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

Diversification Opportunities for Timken and China Aircraft

-0.07

Correlation Coefficient

Timken  China Aircraft

Good diversification

The 3 months correlation between Timken and China is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and China Aircraft Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Aircraft Leasing 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 China Aircraft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Aircraft Leasing has no effect on the direction of Timken i.e., Timken and China Aircraft go up and down completely randomly.

Pair Corralation between Timken and China Aircraft

Considering the 90-day investment horizon Timken is expected to generate 2.49 times less return on investment than China Aircraft. But when comparing it to its historical volatility, Timken Company is 1.29 times less risky than China Aircraft. It trades about 0.07 of its potential returns per unit of risk. China Aircraft Leasing is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  40.00  in China Aircraft Leasing on December 27, 2024 and sell it today you would earn a total of  7.00  from holding China Aircraft Leasing or generate 17.5% return on investment over 90 days.

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

Timken Company  vs.  China Aircraft Leasing

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.

China Aircraft Leasing

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Aircraft Leasing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, China Aircraft reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Timken and China Aircraft

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

The idea behind Timken Company and China Aircraft Leasing 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.