Correlation Between Timken and TRUIST

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

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

Diversification Opportunities for Timken and TRUIST

0.18

Correlation Coefficient

Timken  TRUIST

Average diversification

The 3 months correlation between Timken and TRUIST is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and TRUIST FINANCIAL P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRUIST FINANCIAL P 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 TRUIST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRUIST FINANCIAL P has no effect on the direction of Timken i.e., Timken and TRUIST go up and down completely randomly.

Pair Corralation between Timken and TRUIST

Considering the 90-day investment horizon Timken Company is expected to generate 1.72 times more return on investment than TRUIST. However, Timken is 1.72 times more volatile than TRUIST FINANCIAL P. It trades about -0.01 of its potential returns per unit of risk. TRUIST FINANCIAL P is currently generating about -0.12 per unit of risk. If you would invest  7,694  in Timken Company on December 4, 2024 and sell it today you would lose (153.00) from holding Timken Company or give up 1.99% of portfolio value over 90 days.

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

Timken Company  vs.  TRUIST FINANCIAL P

Timken Company

Risk-Adjusted Performance

Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

TRUIST FINANCIAL P

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRUIST FINANCIAL P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for TRUIST FINANCIAL P investors.

Pair Trading with Timken and TRUIST

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

The idea behind Timken Company and TRUIST FINANCIAL P 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.