Correlation Between GENERAL and Timken

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

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

Diversification Opportunities for GENERAL and Timken

-0.48

Correlation Coefficient

GENERAL  Timken

Very good diversification

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

Pair Corralation between GENERAL and Timken

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to under-perform the Timken. But the bond apears to be less risky and, when comparing its historical volatility, GENERAL ELEC CAP is 1.48 times less risky than Timken. The bond trades about -0.37 of its potential returns per unit of risk. The Timken Company is currently generating about -0.15 of returns per unit of risk over similar time horizon. 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

GENERAL ELEC CAP  vs.  Timken Company

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.

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.

Pair Trading with GENERAL and Timken

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

The idea behind GENERAL ELEC CAP and Timken Company 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.