Correlation Between Travelers Companies and Merck
Can any of the company-specific risk be diversified away by investing in both Travelers Companies and Merck 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 Travelers Companies and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Travelers Companies and Merck Company, you can compare the effects of market volatilities on Travelers Companies and Merck 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 Travelers Companies with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travelers Companies and Merck.
Diversification Opportunities for Travelers Companies and Merck
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Travelers and Merck is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Travelers Companies 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 The Travelers Companies are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Travelers Companies i.e., Travelers Companies and Merck go up and down completely randomly.
Pair Corralation between Travelers Companies and Merck
Considering the 90-day investment horizon Travelers Companies is expected to generate 30.9 times less return on investment than Merck. In addition to that, Travelers Companies is 1.3 times more volatile than Merck Company. It trades about 0.0 of its total potential returns per unit of risk. Merck Company is currently generating about 0.14 per unit of volatility. If you would invest 12,200 in Merck Company on February 10, 2024 and sell it today you would earn a total of 806.00 from holding Merck Company or generate 6.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Travelers Companies vs. Merck Company
Performance |
| Timeline |
| The Travelers Companies |
| Merck Company |
Travelers Companies and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Travelers Companies and Merck
The main advantage of trading using opposite Travelers Companies and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travelers Companies position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Travelers Companies vs. Progressive Corp | Travelers Companies vs. Chubb | Travelers Companies vs. Cincinnati Financial | Travelers Companies vs. W R Berkley |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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