Correlation Between Timken and IB Acquisition

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

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

Diversification Opportunities for Timken and IB Acquisition

0.56

Correlation Coefficient

Timken  IB Acquisition

Very weak diversification

The 3 months correlation between Timken and IBAC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and IB Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IB Acquisition Corp 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 IB Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IB Acquisition Corp has no effect on the direction of Timken i.e., Timken and IB Acquisition go up and down completely randomly.

Pair Corralation between Timken and IB Acquisition

Considering the 90-day investment horizon Timken Company is expected to generate 13.98 times more return on investment than IB Acquisition. However, Timken is 13.98 times more volatile than IB Acquisition Corp. It trades about 0.03 of its potential returns per unit of risk. IB Acquisition Corp is currently generating about 0.21 per unit of risk. If you would invest  7,345  in Timken Company on December 5, 2024 and sell it today you would earn a total of  118.00  from holding Timken Company or generate 1.61% return on investment over 90 days.

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

Timken Company  vs.  IB Acquisition Corp

Timken Company

Risk-Adjusted Performance

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.

IB Acquisition Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IB Acquisition Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IB Acquisition is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Timken and IB Acquisition

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

The idea behind Timken Company and IB Acquisition Corp 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.