Correlation Between Timken and CITIGROUP

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

By analyzing existing cross correlation between Timken Company and CITIGROUP INC 6, you can compare the effects of market volatilities on Timken and CITIGROUP 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 CITIGROUP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Timken and CITIGROUP.

Diversification Opportunities for Timken and CITIGROUP

0.28

Correlation Coefficient

Timken  CITIGROUP

Modest diversification

The 3 months correlation between Timken and CITIGROUP is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and CITIGROUP INC 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIGROUP INC 6 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 CITIGROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIGROUP INC 6 has no effect on the direction of Timken i.e., Timken and CITIGROUP go up and down completely randomly.

Pair Corralation between Timken and CITIGROUP

Considering the 90-day investment horizon Timken Company is expected to generate 2.37 times more return on investment than CITIGROUP. However, Timken is 2.37 times more volatile than CITIGROUP INC 6. It trades about -0.01 of its potential returns per unit of risk. CITIGROUP INC 6 is currently generating about -0.04 per unit of risk. If you would invest  8,058  in Timken Company on September 3, 2024 and sell it today you would lose (313.00) from holding Timken Company or give up 3.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

Timken Company  vs.  CITIGROUP INC 6

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.

CITIGROUP INC 6

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITIGROUP INC 6 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CITIGROUP 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 CITIGROUP

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

The idea behind Timken Company and CITIGROUP INC 6 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.