Correlation Between Timken and AB SKF

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

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

Diversification Opportunities for Timken and AB SKF

0.27

Correlation Coefficient

Timken  AB SKF

Modest diversification

The 3 months correlation between Timken and SKFRY is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF 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 AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Timken i.e., Timken and AB SKF go up and down completely randomly.

Pair Corralation between Timken and AB SKF

Considering the 90-day investment horizon Timken Company is expected to under-perform the AB SKF. In addition to that, Timken is 1.15 times more volatile than AB SKF. It trades about -0.01 of its total potential returns per unit of risk. AB SKF is currently generating about 0.05 per unit of volatility. If you would invest  1,832  in AB SKF on September 2, 2024 and sell it today you would earn a total of  89.00  from holding AB SKF or generate 4.86% return on investment over 90 days.

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

Timken Company  vs.  AB SKF

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.

AB SKF

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, AB SKF 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 AB SKF

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

The idea behind Timken Company and AB SKF 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.