Correlation Between Small Cap and Travelers Companies
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and Travelers Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and The Travelers Companies, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of Travelers Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Travelers Companies.
Diversification Opportunities for Small Cap and Travelers Companies
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Travelers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core 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 Small Cap 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 Small Cap Core 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 Small Cap i.e., Small Cap and Travelers Companies go up and down completely randomly.
Pair Corralation between Small Cap and Travelers Companies
Assuming the 90 days horizon Small Cap is expected to generate 1.35 times less return on investment than Travelers Companies. But when comparing it to its historical volatility, Small Cap Core is 1.2 times less risky than Travelers Companies. It trades about 0.06 of its potential returns per unit of risk. The Travelers Companies is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 21,792 in The Travelers Companies on August 27, 2024 and sell it today you would earn a total of 4,455 from holding The Travelers Companies or generate 20.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Core vs. The Travelers Companies
Performance |
| Timeline |
| Small Cap Core |
| The Travelers Companies |
Small Cap and Travelers Companies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Travelers Companies
The main advantage of trading using opposite Small Cap and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Pace High Yield | Small Cap vs. Needham Aggressive Growth | Small Cap vs. Metropolitan West High | Small Cap vs. Pioneer High Income |
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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 the Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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