Correlation Between Amazon and Travelers Companies

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Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and Travelers Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and The Travelers Companies, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of Travelers Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Travelers Companies.

Diversification Opportunities for Amazon and Travelers Companies

-0.28
  Correlation Coefficient

Very good diversification

The 3 months correlation between Amazon and Travelers is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc 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 Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and Travelers Companies go up and down completely randomly.

Pair Corralation between Amazon and Travelers Companies

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.6 times more return on investment than Travelers Companies. However, Amazon is 2.6 times more volatile than The Travelers Companies. It trades about 0.34 of its potential returns per unit of risk. The Travelers Companies is currently generating about 0.39 per unit of risk. If you would invest  11,376  in Amazon Inc on May 17, 2022 and sell it today you would earn a total of  2,942  from holding Amazon Inc or generate 25.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  The Travelers Companies

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Amazon disclosed solid returns over the last few months and may actually be approaching a breakup point.

Amazon Price Channel

The Travelers Companies 
Travelers Performance
0 of 100
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 fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Travelers Price Channel

Amazon and Travelers Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Travelers Companies

The main advantage of trading using opposite Amazon and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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.
Check out your portfolio center. 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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