Correlation Between STATE and Timken

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

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

Diversification Opportunities for STATE and Timken

0.22

Correlation Coefficient

STATE  Timken

Modest diversification

The 3 months correlation between STATE and Timken is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding STATE STR P and Timken Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timken Company and STATE 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 STATE STR P 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 STATE i.e., STATE and Timken go up and down completely randomly.

Pair Corralation between STATE and Timken

Assuming the 90 days trading horizon STATE STR P is expected to under-perform the Timken. But the bond apears to be less risky and, when comparing its historical volatility, STATE STR P is 2.36 times less risky than Timken. The bond trades about -0.11 of its potential returns per unit of risk. The Timken Company is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7,712  in Timken Company on November 28, 2024 and sell it today you would earn a total of  304.00  from holding Timken Company or generate 3.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.22%
Values	Daily Returns

STATE STR P  vs.  Timken Company

STATE STR P

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with STATE and Timken

The main advantage of trading using opposite STATE and Timken positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STATE 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 STATE STR P 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.

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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.