Correlation Between Timken and Raytech Holding

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

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

Diversification Opportunities for Timken and Raytech Holding

-0.29

Correlation Coefficient

Timken  Raytech Holding

Very good diversification

The 3 months correlation between Timken and Raytech is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and Raytech Holding Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytech Holding 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 Raytech Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytech Holding has no effect on the direction of Timken i.e., Timken and Raytech Holding go up and down completely randomly.

Pair Corralation between Timken and Raytech Holding

Considering the 90-day investment horizon Timken is expected to generate 15.75 times less return on investment than Raytech Holding. But when comparing it to its historical volatility, Timken Company is 8.28 times less risky than Raytech Holding. It trades about 0.04 of its potential returns per unit of risk. Raytech Holding Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  144.00  in Raytech Holding Limited on December 27, 2024 and sell it today you would earn a total of  43.00  from holding Raytech Holding Limited or generate 29.86% 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.  Raytech Holding Limited

Timken Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Timken Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Raytech Holding

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytech Holding Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Raytech Holding showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Timken and Raytech Holding

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

The idea behind Timken Company and Raytech Holding Limited 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.