Correlation Between RE Old and Travelers Companies

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Can any of the company-specific risk be diversified away by investing in both RE Old and Travelers Companies 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 RE Old and Travelers Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RE Old and The Travelers Companies, you can compare the effects of market volatilities on RE Old and Travelers Companies 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 RE Old with a short position of Travelers Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of RE Old and Travelers Companies.

Diversification Opportunities for RE Old and Travelers Companies

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between RE Old and Travelers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding RE Old and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies and RE Old 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 RE Old are associated (or correlated) with Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of RE Old i.e., RE Old and Travelers Companies go up and down completely randomly.

Pair Corralation between RE Old and Travelers Companies

Allowing for the 90-day total investment horizon RE Old is expected to generate 3.72 times less return on investment than Travelers Companies. In addition to that, RE Old is 1.18 times more volatile than The Travelers Companies. It trades about 0.03 of its total potential returns per unit of risk. The Travelers Companies is currently generating about 0.11 per unit of volatility. If you would invest  16,855  in The Travelers Companies on December 29, 2023 and sell it today you would earn a total of  6,028  from holding The Travelers Companies or generate 35.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy44.76%
ValuesDaily Returns

RE Old  vs.  The Travelers Companies

 Performance 
       Timeline  
RE Old 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days RE Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, RE Old is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
The Travelers Companies 

Risk-Adjusted Performance

23 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

RE Old and Travelers Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with RE Old and Travelers Companies

The main advantage of trading using opposite RE Old and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RE Old position performs unexpectedly, Travelers Companies 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 Travelers Companies will offset losses from the drop in Travelers Companies' long position.
The idea behind RE Old and The Travelers Companies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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