Correlation Between Dover and Travelers Companies

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

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

Diversification Opportunities for Dover and Travelers Companies

0.73

Correlation Coefficient

Dover  Travelers Companies

Poor diversification

The 3 months correlation between Dover and Travelers is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dover 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 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 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 Dover i.e., Dover and Travelers Companies go up and down completely randomly.

Pair Corralation between Dover and Travelers Companies

Considering the 90-day investment horizon Dover is expected to under-perform the Travelers Companies. But the stock apears to be less risky and, when comparing its historical volatility, Dover is 1.38 times less risky than Travelers Companies. The stock trades about -0.46 of its potential returns per unit of risk. The The Travelers Companies is currently generating about -0.27 of returns per unit of risk over similar time horizon. If you would invest  26,013  in The Travelers Companies on September 24, 2024 and sell it today you would lose (1,877) from holding The Travelers Companies or give up 7.22% of portfolio value over 90 days.

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

Dover  vs.  The Travelers Companies

Dover

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dover has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dover is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

The Travelers Companies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Dover and Travelers Companies

The main advantage of trading using opposite Dover and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dover 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 Dover 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.