Correlation Between Floor Decor and Travelers Companies

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

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

Diversification Opportunities for Floor Decor and Travelers Companies

-0.44

Correlation Coefficient

Floor Decor  Travelers Companies

Very good diversification

The 3 months correlation between Floor and Travelers is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings 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 Floor Decor 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 Floor Decor Holdings 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 Floor Decor i.e., Floor Decor and Travelers Companies go up and down completely randomly.

Pair Corralation between Floor Decor and Travelers Companies

Considering the 90-day investment horizon Floor Decor is expected to generate 2.1 times less return on investment than Travelers Companies. In addition to that, Floor Decor is 1.4 times more volatile than The Travelers Companies. It trades about 0.04 of its total potential returns per unit of risk. The Travelers Companies is currently generating about 0.13 per unit of volatility. If you would invest  23,041  in The Travelers Companies on September 4, 2024 and sell it today you would earn a total of  3,310  from holding The Travelers Companies or generate 14.37% return on investment over 90 days.

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

Floor Decor Holdings  vs.  The Travelers Companies

Floor Decor Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Floor Decor Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Floor Decor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

The Travelers Companies

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 10 (%) 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.

Pair Trading with Floor Decor and Travelers Companies

The main advantage of trading using opposite Floor Decor and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floor Decor 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 Floor Decor Holdings 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 Global Correlations module to find global opportunities by holding instruments from different markets.