Correlation Between Timken and GENERAL

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

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

Diversification Opportunities for Timken and GENERAL

-0.48

Correlation Coefficient

Timken  GENERAL

Very good diversification

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

Pair Corralation between Timken and GENERAL

Considering the 90-day investment horizon Timken Company is expected to generate 1.48 times more return on investment than GENERAL. However, Timken is 1.48 times more volatile than GENERAL ELEC CAP. It trades about -0.15 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about -0.37 per unit of risk. If you would invest  7,764  in Timken Company on October 11, 2024 and sell it today you would lose (369.00) from holding Timken Company or give up 4.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	28.57%
Values	Daily Returns

Timken Company  vs.  GENERAL ELEC CAP

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.

GENERAL ELEC CAP

Risk-Adjusted Performance

11 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GENERAL ELEC CAP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, GENERAL sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Timken and GENERAL

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

The idea behind Timken Company and GENERAL ELEC CAP 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.