Correlation Between White Mountains and Travelers Companies

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

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

Diversification Opportunities for White Mountains and Travelers Companies

0.42

Correlation Coefficient

White Mountains  Travelers Companies

Very weak diversification

The 3 months correlation between White and Travelers is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding White Mountains Insurance and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies and White Mountains 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 White Mountains Insurance are associated (or correlated) with Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of White Mountains i.e., White Mountains and Travelers Companies go up and down completely randomly.

Pair Corralation between White Mountains and Travelers Companies

Considering the 90-day investment horizon White Mountains Insurance is expected to under-perform the Travelers Companies. But the stock apears to be less risky and, when comparing its historical volatility, White Mountains Insurance is 1.0 times less risky than Travelers Companies. The stock trades about -0.06 of its potential returns per unit of risk. The The Travelers Companies is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  23,771  in The Travelers Companies on October 20, 2024 and sell it today you would earn a total of  181.00  from holding The Travelers Companies or generate 0.76% return on investment over 90 days.

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

White Mountains Insurance  vs.  The Travelers Companies

White Mountains Insurance

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in White Mountains Insurance are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, White Mountains is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

The Travelers Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Travelers Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with White Mountains and Travelers Companies

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

The idea behind White Mountains Insurance and The Travelers Companies 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.