Correlation Between Travelers Companies and Verizon Communications

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

Diversification Opportunities for Travelers Companies and Verizon Communications

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Travelers and Verizon is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Travelers Companies i.e., Travelers Companies and Verizon Communications go up and down completely randomly.

Pair Corralation between Travelers Companies and Verizon Communications

Considering the 90-day investment horizon The Travelers Companies is expected to generate 1.17 times more return on investment than Verizon Communications. However, Travelers Companies is 1.17 times more volatile than Verizon Communications. It trades about 0.05 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.04 per unit of risk. If you would invest  14,856  in The Travelers Companies on May 17, 2022 and sell it today you would earn a total of  2,346  from holding The Travelers Companies or generate 15.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

The Travelers Companies  vs.  Verizon Communications

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

Travelers Price Channel

Verizon Communications 
Verizon Performance
0 of 100
Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Verizon Price Channel

Travelers Companies and Verizon Communications Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Travelers Companies and Verizon Communications

The main advantage of trading using opposite Travelers Companies and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travelers Companies position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.
The idea behind The Travelers Companies and Verizon Communications 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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