Correlation Between Timken and Spectrum Brands

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

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

Diversification Opportunities for Timken and Spectrum Brands

-0.25

Correlation Coefficient

Timken  Spectrum Brands

Very good diversification

The 3 months correlation between Timken and Spectrum is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and Spectrum Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectrum Brands Holdings 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 Spectrum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectrum Brands Holdings has no effect on the direction of Timken i.e., Timken and Spectrum Brands go up and down completely randomly.

Pair Corralation between Timken and Spectrum Brands

Considering the 90-day investment horizon Timken Company is expected to generate 1.04 times more return on investment than Spectrum Brands. However, Timken is 1.04 times more volatile than Spectrum Brands Holdings. It trades about 0.06 of its potential returns per unit of risk. Spectrum Brands Holdings is currently generating about -0.18 per unit of risk. If you would invest  7,133  in Timken Company on December 20, 2024 and sell it today you would earn a total of  411.00  from holding Timken Company or generate 5.76% 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.  Spectrum Brands Holdings

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.

Spectrum Brands Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spectrum Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Timken and Spectrum Brands

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

The idea behind Timken Company and Spectrum Brands Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.