Correlation Between Timken and United Guardian

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

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

Diversification Opportunities for Timken and United Guardian

-0.5

Correlation Coefficient

Timken  United Guardian

Very good diversification

The 3 months correlation between Timken and United is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and United Guardian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Guardian 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 United Guardian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Guardian has no effect on the direction of Timken i.e., Timken and United Guardian go up and down completely randomly.

Pair Corralation between Timken and United Guardian

Considering the 90-day investment horizon Timken Company is expected to generate 0.58 times more return on investment than United Guardian. However, Timken Company is 1.74 times less risky than United Guardian. It trades about 0.04 of its potential returns per unit of risk. United Guardian is currently generating about 0.01 per unit of risk. If you would invest  8,354  in Timken Company on January 28, 2024 and sell it today you would earn a total of  144.00  from holding Timken Company or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.73%
Values	Daily Returns

Timken Company  vs.  United Guardian

Timken Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Timken Company are ranked lower than 2 (%) 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 current stock price agitation, may contribute to short-term losses for the retail investors.

United Guardian

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Guardian are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, United Guardian reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Timken and United Guardian

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

The idea behind Timken Company and United Guardian 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.