Correlation Between ATT and TRAVELERS

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

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

Diversification Opportunities for ATT and TRAVELERS

-0.68

Correlation Coefficient

ATT  TRAVELERS

Excellent diversification

The 3 months correlation between ATT and TRAVELERS is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc 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 ATT 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 ATT Inc 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 ATT i.e., ATT and TRAVELERS go up and down completely randomly.

Pair Corralation between ATT and TRAVELERS

Taking into account the 90-day investment horizon ATT is expected to generate 70.66 times less return on investment than TRAVELERS. But when comparing it to its historical volatility, ATT Inc is 47.95 times less risky than TRAVELERS. It trades about 0.04 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 Against
Strength	Weak
Accuracy	78.23%
Values	Daily Returns

ATT Inc  vs.  TRAVELERS PPTY CAS

ATT Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ATT is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

TRAVELERS PPTY CAS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRAVELERS PPTY CAS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TRAVELERS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ATT and TRAVELERS

The main advantage of trading using opposite ATT and TRAVELERS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT Inc 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.