Correlation Between NYSE Composite and TRAVELERS

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

By analyzing existing cross correlation between NYSE Composite and TRAVELERS PPTY CAS, you can compare the effects of market volatilities on NYSE Composite and TRAVELERS 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 NYSE Composite with a short position of TRAVELERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and TRAVELERS.

Diversification Opportunities for NYSE Composite and TRAVELERS

0.07

Correlation Coefficient

NYSE Composite  TRAVELERS

Significant diversification

The 3 months correlation between NYSE and TRAVELERS is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and TRAVELERS PPTY CAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVELERS PPTY CAS and NYSE Composite 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 NYSE Composite are associated (or correlated) with TRAVELERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVELERS PPTY CAS has no effect on the direction of NYSE Composite i.e., NYSE Composite and TRAVELERS go up and down completely randomly.

Pair Corralation between NYSE Composite and TRAVELERS

Assuming the 90 days trading horizon NYSE Composite is expected to generate 102.78 times less return on investment than TRAVELERS. But when comparing it to its historical volatility, NYSE Composite is 100.38 times less risky than TRAVELERS. It trades about 0.06 of its potential returns per unit of risk. TRAVELERS PPTY CAS is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11,492  in TRAVELERS PPTY CAS on October 10, 2024 and sell it today you would lose (358.00) from holding TRAVELERS PPTY CAS or give up 3.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.38%
Values	Daily Returns

NYSE Composite  vs.  TRAVELERS PPTY CAS

Pair Trading with NYSE Composite and TRAVELERS

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

The idea behind NYSE Composite and TRAVELERS PPTY CAS 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.