Correlation Between Timken and MISUMI

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

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

Diversification Opportunities for Timken and MISUMI

0.6

Correlation Coefficient

Timken  MISUMI

Poor diversification

The 3 months correlation between Timken and MISUMI is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and MISUMI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MISUMI Group 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 MISUMI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MISUMI Group has no effect on the direction of Timken i.e., Timken and MISUMI go up and down completely randomly.

Pair Corralation between Timken and MISUMI

Considering the 90-day investment horizon Timken Company is expected to under-perform the MISUMI. But the stock apears to be less risky and, when comparing its historical volatility, Timken Company is 1.29 times less risky than MISUMI. The stock trades about -0.02 of its potential returns per unit of risk. The MISUMI Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  834.00  in MISUMI Group on September 15, 2024 and sell it today you would lose (21.00) from holding MISUMI Group or give up 2.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Timken Company  vs.  MISUMI Group

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 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.

MISUMI Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MISUMI Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, MISUMI 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 MISUMI

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

The idea behind Timken Company and MISUMI Group 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.