Correlation Between Verizon Communications and Travelers Companies

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

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

Diversification Opportunities for Verizon Communications and Travelers Companies

0.11

Correlation Coefficient

Verizon Communications  Travelers Companies

Average diversification

The 3 months correlation between Verizon and Travelers is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications 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 Verizon Communications 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 Verizon Communications 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 Verizon Communications i.e., Verizon Communications and Travelers Companies go up and down completely randomly.

Pair Corralation between Verizon Communications and Travelers Companies

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 2.01 times less return on investment than Travelers Companies. In addition to that, Verizon Communications is 1.08 times more volatile than The Travelers Companies. It trades about 0.07 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  17,683  in The Travelers Companies on January 25, 2024 and sell it today you would earn a total of  3,660  from holding The Travelers Companies or generate 20.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Verizon Communications  vs.  The Travelers Companies

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

The Travelers Companies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Verizon Communications and Travelers Companies

The main advantage of trading using opposite Verizon Communications and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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 Verizon Communications 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.