Correlation Between Travelers Companies and Masco

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

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

Diversification Opportunities for Travelers Companies and Masco

0.64

Correlation Coefficient

Travelers Companies  Masco

Poor diversification

The 3 months correlation between Travelers and Masco is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco and Travelers Companies 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 The Travelers Companies are associated (or correlated) with Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of Travelers Companies i.e., Travelers Companies and Masco go up and down completely randomly.

Pair Corralation between Travelers Companies and Masco

Assuming the 90 days trading horizon The Travelers Companies is expected to generate 43.62 times more return on investment than Masco. However, Travelers Companies is 43.62 times more volatile than Masco. It trades about 0.11 of its potential returns per unit of risk. Masco is currently generating about 0.13 per unit of risk. If you would invest  377,611  in The Travelers Companies on September 23, 2024 and sell it today you would earn a total of  147,638  from holding The Travelers Companies or generate 39.1% return on investment over 90 days.

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

The Travelers Companies  vs.  Masco

The Travelers Companies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Travelers Companies and Masco

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

The idea behind The Travelers Companies and Masco 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.