Correlation Between Fannie Mae and Hiscox

Can any of the company-specific risk be diversified away by investing in both Fannie Mae and Hiscox 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 Fannie Mae and Hiscox into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fannie Mae and Hiscox, you can compare the effects of market volatilities on Fannie Mae and Hiscox 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 Fannie Mae with a short position of Hiscox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fannie Mae and Hiscox.

Diversification Opportunities for Fannie Mae and Hiscox

-0.69

Correlation Coefficient

Fannie Mae  Hiscox

Excellent diversification

The 3 months correlation between Fannie and Hiscox is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Fannie Mae and Hiscox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hiscox and Fannie Mae 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 Fannie Mae are associated (or correlated) with Hiscox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hiscox has no effect on the direction of Fannie Mae i.e., Fannie Mae and Hiscox go up and down completely randomly.

Pair Corralation between Fannie Mae and Hiscox

Assuming the 90 days trading horizon Fannie Mae is expected to generate 7.04 times more return on investment than Hiscox. However, Fannie Mae is 7.04 times more volatile than Hiscox. It trades about 0.24 of its potential returns per unit of risk. Hiscox is currently generating about -0.03 per unit of risk. If you would invest  121.00  in Fannie Mae on September 12, 2024 and sell it today you would earn a total of  169.00  from holding Fannie Mae or generate 139.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	72.31%
Values	Daily Returns

Fannie Mae  vs.  Hiscox

Fannie Mae

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fannie Mae are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Fannie Mae unveiled solid returns over the last few months and may actually be approaching a breakup point.

Hiscox

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hiscox has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Hiscox is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Fannie Mae and Hiscox

The main advantage of trading using opposite Fannie Mae and Hiscox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fannie Mae position performs unexpectedly, Hiscox 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 Hiscox will offset losses from the drop in Hiscox's long position.

The idea behind Fannie Mae and Hiscox 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..