Correlation Between Travelers Companies and Caterpillar

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Can any of the company-specific risk be diversified away by investing in both Travelers Companies and Caterpillar 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 Caterpillar 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 Caterpillar, you can compare the effects of market volatilities on Travelers Companies and Caterpillar 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 Caterpillar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travelers Companies and Caterpillar.

Diversification Opportunities for Travelers Companies and Caterpillar

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Travelers and Caterpillar is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar 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 Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Travelers Companies i.e., Travelers Companies and Caterpillar go up and down completely randomly.

Pair Corralation between Travelers Companies and Caterpillar

Considering the 90-day investment horizon Travelers Companies is expected to generate 1.45 times less return on investment than Caterpillar. But when comparing it to its historical volatility, The Travelers Companies is 1.73 times less risky than Caterpillar. It trades about 0.34 of its potential returns per unit of risk. Caterpillar is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  17,218  in Caterpillar on May 16, 2022 and sell it today you would earn a total of  2,466  from holding Caterpillar or generate 14.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

The Travelers Companies  vs.  Caterpillar

 Performance (%) 
       Timeline  
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

Caterpillar 
Caterpillar Performance
0 of 100
Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Caterpillar Price Channel

Travelers Companies and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Travelers Companies and Caterpillar

The main advantage of trading using opposite Travelers Companies and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travelers Companies position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.
The idea behind The Travelers Companies and Caterpillar 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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