Correlation Between Timken and New Era

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

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

Diversification Opportunities for Timken and New Era

0.48

Correlation Coefficient

Timken  New Era

Very weak diversification

The 3 months correlation between Timken and New is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and New Era Helium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Era Helium 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 New Era. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Era Helium has no effect on the direction of Timken i.e., Timken and New Era go up and down completely randomly.

Pair Corralation between Timken and New Era

Considering the 90-day investment horizon Timken Company is expected to generate 0.28 times more return on investment than New Era. However, Timken Company is 3.54 times less risky than New Era. It trades about -0.12 of its potential returns per unit of risk. New Era Helium is currently generating about -0.27 per unit of risk. If you would invest  8,405  in Timken Company on September 22, 2024 and sell it today you would lose (1,242) from holding Timken Company or give up 14.78% of portfolio value over 90 days.

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

Timken Company  vs.  New Era Helium

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 latest unsteady performance, the Stock's forward-looking signals remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

New Era Helium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Era Helium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Timken and New Era

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

The idea behind Timken Company and New Era Helium 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.