Correlation Between General Electric and Travelers Companies

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

Diversification Opportunities for General Electric and Travelers Companies

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between General and Travelers is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding General Electric 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 General Electric 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 General Electric 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 General Electric i.e., General Electric and Travelers Companies go up and down completely randomly.

Pair Corralation between General Electric and Travelers Companies

Allowing for the 90-day total investment horizon General Electric is expected to generate 1.07 times more return on investment than Travelers Companies. However, General Electric is 1.07 times more volatile than The Travelers Companies. It trades about 0.64 of its potential returns per unit of risk. The Travelers Companies is currently generating about 0.14 per unit of risk. If you would invest  6,201  in General Electric on May 14, 2022 and sell it today you would earn a total of  1,792  from holding General Electric or generate 28.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  The Travelers Companies

 Performance (%) 
       Timeline  
General Electric 
General Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish technical and fundamental indicators, General Electric may actually be approaching a critical reversion point that can send shares even higher in September 2022.

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

Travelers Price Channel

General Electric and Travelers Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Travelers Companies

The main advantage of trading using opposite General Electric and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.

General Electric

Pair trading matchups for General Electric

The idea behind General Electric 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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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