Correlation Between Travelers Companies and ARK Innovation

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

Diversification Opportunities for Travelers Companies and ARK Innovation

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Travelers and ARK Innovation is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and ARK Innovation ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Innovation ETF and Travelers Companies 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 The Travelers Companies are associated (or correlated) with ARK Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Innovation ETF has no effect on the direction of Travelers Companies i.e., Travelers Companies and ARK Innovation go up and down completely randomly.

Pair Corralation between Travelers Companies and ARK Innovation

If you would invest  18,446  in The Travelers Companies on September 1, 2022 and sell it today you would earn a total of  535.00  from holding The Travelers Companies or generate 2.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy4.55%
ValuesDaily Returns

The Travelers Companies  vs.  ARK Innovation ETF

 Performance (%) 
       Timeline  
The Travelers Companies 
Travelers Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Travelers Price Channel

ARK Innovation ETF 
ARK Innovation Performance
0 of 100
Over the last 90 days ARK Innovation ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, ARK Innovation is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Travelers Companies and ARK Innovation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Travelers Companies and ARK Innovation

The main advantage of trading using opposite Travelers Companies and ARK Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travelers Companies position performs unexpectedly, ARK Innovation 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 ARK Innovation will offset losses from the drop in ARK Innovation's long position.
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The idea behind The Travelers Companies and ARK Innovation ETF 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against ARK Innovation as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. ARK Innovation's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, ARK Innovation's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to ARK Innovation ETF.
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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