Correlation Between Dover and Chubb

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

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

Diversification Opportunities for Dover and Chubb

-0.06

Correlation Coefficient

Dover  Chubb

Good diversification

The 3 months correlation between Dover and Chubb is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dover and Chubb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chubb and Dover 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 Dover are associated (or correlated) with Chubb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chubb has no effect on the direction of Dover i.e., Dover and Chubb go up and down completely randomly.

Pair Corralation between Dover and Chubb

Considering the 90-day investment horizon Dover is expected to generate 1.2 times more return on investment than Chubb. However, Dover is 1.2 times more volatile than Chubb. It trades about 0.16 of its potential returns per unit of risk. Chubb is currently generating about 0.02 per unit of risk. If you would invest  17,980  in Dover on September 3, 2024 and sell it today you would earn a total of  2,610  from holding Dover or generate 14.52% return on investment over 90 days.

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

Dover  vs.  Chubb

Dover

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dover are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dover showed solid returns over the last few months and may actually be approaching a breakup point.

Chubb

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chubb are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Chubb is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dover and Chubb

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

The idea behind Dover and Chubb 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.