Correlation Between Travelers Companies and American Funds

Can any of the company-specific risk be diversified away by investing in both Travelers Companies and American Funds 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 American Funds 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 American Funds Lege, you can compare the effects of market volatilities on Travelers Companies and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travelers Companies and American Funds.

Diversification Opportunities for Travelers Companies and American Funds

0.8

Correlation Coefficient

Travelers Companies  American Funds

Very poor diversification

The 3 months correlation between Travelers and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and American Funds Lege in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Lege 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Lege has no effect on the direction of Travelers Companies i.e., Travelers Companies and American Funds go up and down completely randomly.

Pair Corralation between Travelers Companies and American Funds

Considering the 90-day investment horizon The Travelers Companies is expected to generate 8.41 times more return on investment than American Funds. However, Travelers Companies is 8.41 times more volatile than American Funds Lege. It trades about 0.11 of its potential returns per unit of risk. American Funds Lege is currently generating about 0.17 per unit of risk. If you would invest  23,889  in The Travelers Companies on December 30, 2024 and sell it today you would earn a total of  2,290  from holding The Travelers Companies or generate 9.59% return on investment over 90 days.

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

The Travelers Companies  vs.  American Funds Lege

The Travelers Companies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Travelers Companies may actually be approaching a critical reversion point that can send shares even higher in April 2025.

American Funds Lege

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Lege are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Travelers Companies and American Funds

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

The idea behind The Travelers Companies and American Funds Lege 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 Global Correlations module to find global opportunities by holding instruments from different markets.