Correlation Between Timken and HE Equipment
Can any of the company-specific risk be diversified away by investing in both Timken and HE Equipment 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 HE Equipment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Timken Company and HE Equipment Services, you can compare the effects of market volatilities on Timken and HE Equipment 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 HE Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Timken and HE Equipment.
Diversification Opportunities for Timken and HE Equipment
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Timken and HEES is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services 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 HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of Timken i.e., Timken and HE Equipment go up and down completely randomly.
Pair Corralation between Timken and HE Equipment
Considering the 90-day investment horizon Timken Company is expected to under-perform the HE Equipment. In addition to that, Timken is 1.13 times more volatile than HE Equipment Services. It trades about -0.06 of its total potential returns per unit of risk. HE Equipment Services is currently generating about 0.21 per unit of volatility. If you would invest 5,225 in HE Equipment Services on September 1, 2024 and sell it today you would earn a total of 749.00 from holding HE Equipment Services or generate 14.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Timken Company vs. HE Equipment Services
Performance |
| Timeline |
| Timken Company |
| HE Equipment Services |
Timken and HE Equipment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Timken and HE Equipment
The main advantage of trading using opposite Timken and HE Equipment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken position performs unexpectedly, HE Equipment 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 HE Equipment will offset losses from the drop in HE Equipment's long position.The idea behind Timken Company and HE Equipment Services 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.| HE Equipment vs. McGrath RentCorp | HE Equipment vs. Herc Holdings | HE Equipment vs. PROG Holdings | HE Equipment vs. Custom Truck One |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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