Correlation Between Li AutoInc and Travelers Companies

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

By analyzing existing cross correlation between Li AutoInc and The Travelers Companies, you can compare the effects of market volatilities on Li AutoInc 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 Li AutoInc with a short position of Travelers Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li AutoInc and Travelers Companies.

Diversification Opportunities for Li AutoInc and Travelers Companies

0.26

Correlation Coefficient

Li AutoInc  Travelers Companies

Modest diversification

The 3 months correlation between Li AutoInc and Travelers is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Li AutoInc 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 Li AutoInc 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 Li AutoInc 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 Li AutoInc i.e., Li AutoInc and Travelers Companies go up and down completely randomly.

Pair Corralation between Li AutoInc and Travelers Companies

Allowing for the 90-day total investment horizon Li AutoInc is expected to under-perform the Travelers Companies. In addition to that, Li AutoInc is 1.33 times more volatile than The Travelers Companies. It trades about -0.26 of its total potential returns per unit of risk. The Travelers Companies is currently generating about -0.15 per unit of volatility. If you would invest  22,499  in The Travelers Companies on January 20, 2024 and sell it today you would lose (1,457) from holding The Travelers Companies or give up 6.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Li AutoInc  vs.  The Travelers Companies

Li AutoInc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Li AutoInc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, Li AutoInc demonstrated solid returns over the last few months and may actually be approaching a breakup point.

The Travelers Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Travelers Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Li AutoInc and Travelers Companies

The main advantage of trading using opposite Li AutoInc and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li AutoInc 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 Li AutoInc 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.