Correlation Between China Merchants and Travelers Companies

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

Diversification Opportunities for China Merchants and Travelers Companies

0.22
  Correlation Coefficient

Modest diversification

The 3 months correlation between China and Travelers is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank 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 China Merchants 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 China Merchants Bank 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 China Merchants i.e., China Merchants and Travelers Companies go up and down completely randomly.

Pair Corralation between China Merchants and Travelers Companies

Assuming the 90 days horizon China Merchants Bank is expected to under-perform the Travelers Companies. In addition to that, China Merchants is 1.84 times more volatile than The Travelers Companies. It trades about -0.15 of its total potential returns per unit of risk. The Travelers Companies is currently generating about -0.27 per unit of volatility. If you would invest  16,589  in The Travelers Companies on June 27, 2022 and sell it today you would lose (1,041)  from holding The Travelers Companies or give up 6.28% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

China Merchants Bank  vs.  The Travelers Companies

 Performance (%) 
       Timeline  
China Merchants Bank 
China Performance
0 of 100
Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of sluggish performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in October 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

China 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Travelers Price Channel

China Merchants and Travelers Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Merchants and Travelers Companies

The main advantage of trading using opposite China Merchants and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants 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.
China Merchants vs. Sigma Lithium Corp
The idea behind China Merchants Bank 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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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