Correlation Between Travel Leisure and CNH Industrial

Can any of the company-specific risk be diversified away by investing in both Travel Leisure and CNH Industrial 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 Travel Leisure and CNH Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Travel Leisure Co and CNH Industrial NV, you can compare the effects of market volatilities on Travel Leisure and CNH Industrial 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 Travel Leisure with a short position of CNH Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travel Leisure and CNH Industrial.

Diversification Opportunities for Travel Leisure and CNH Industrial

0.06

Correlation Coefficient

Travel Leisure  CNH Industrial

Significant diversification

The 3 months correlation between Travel and CNH is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Travel Leisure Co and CNH Industrial NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNH Industrial NV and Travel Leisure 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 Travel Leisure Co are associated (or correlated) with CNH Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNH Industrial NV has no effect on the direction of Travel Leisure i.e., Travel Leisure and CNH Industrial go up and down completely randomly.

Pair Corralation between Travel Leisure and CNH Industrial

Assuming the 90 days trading horizon Travel Leisure is expected to generate 1.37 times less return on investment than CNH Industrial. But when comparing it to its historical volatility, Travel Leisure Co is 3.39 times less risky than CNH Industrial. It trades about 0.02 of its potential returns per unit of risk. CNH Industrial NV is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,389  in CNH Industrial NV on October 25, 2024 and sell it today you would lose (150.00) from holding CNH Industrial NV or give up 10.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

Travel Leisure Co  vs.  CNH Industrial NV

Travel Leisure

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Travel Leisure Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Travel Leisure is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

CNH Industrial NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CNH Industrial NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CNH Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Travel Leisure and CNH Industrial

The main advantage of trading using opposite Travel Leisure and CNH Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travel Leisure position performs unexpectedly, CNH Industrial 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 CNH Industrial will offset losses from the drop in CNH Industrial's long position.

The idea behind Travel Leisure Co and CNH Industrial NV 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.