Correlation Between Timken and ALLSTATE

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

By analyzing existing cross correlation between Timken Company and ALLSTATE P 42, you can compare the effects of market volatilities on Timken and ALLSTATE 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 ALLSTATE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Timken and ALLSTATE.

Diversification Opportunities for Timken and ALLSTATE

0.56

Correlation Coefficient

Timken  ALLSTATE

Very weak diversification

The 3 months correlation between Timken and ALLSTATE is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and ALLSTATE P 42 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLSTATE P 42 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 ALLSTATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLSTATE P 42 has no effect on the direction of Timken i.e., Timken and ALLSTATE go up and down completely randomly.

Pair Corralation between Timken and ALLSTATE

Considering the 90-day investment horizon Timken Company is expected to generate 1.6 times more return on investment than ALLSTATE. However, Timken is 1.6 times more volatile than ALLSTATE P 42. It trades about 0.04 of its potential returns per unit of risk. ALLSTATE P 42 is currently generating about -0.08 per unit of risk. If you would invest  7,153  in Timken Company on December 24, 2024 and sell it today you would earn a total of  265.00  from holding Timken Company or generate 3.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	76.67%
Values	Daily Returns

Timken Company  vs.  ALLSTATE P 42

Timken Company

Risk-Adjusted Performance

Insignificant

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.

ALLSTATE P 42

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALLSTATE P 42 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALLSTATE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Timken and ALLSTATE

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

The idea behind Timken Company and ALLSTATE P 42 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.