Correlation Between New Residential and HANOVER INSURANCE

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

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

Diversification Opportunities for New Residential and HANOVER INSURANCE

0.36

Correlation Coefficient

New Residential  HANOVER INSURANCE

Weak diversification

The 3 months correlation between New and HANOVER is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and HANOVER INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HANOVER INSURANCE and New Residential 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 New Residential Investment are associated (or correlated) with HANOVER INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HANOVER INSURANCE has no effect on the direction of New Residential i.e., New Residential and HANOVER INSURANCE go up and down completely randomly.

Pair Corralation between New Residential and HANOVER INSURANCE

Assuming the 90 days trading horizon New Residential is expected to generate 1.4 times less return on investment than HANOVER INSURANCE. But when comparing it to its historical volatility, New Residential Investment is 1.36 times less risky than HANOVER INSURANCE. It trades about 0.12 of its potential returns per unit of risk. HANOVER INSURANCE is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  12,920  in HANOVER INSURANCE on November 20, 2024 and sell it today you would earn a total of  2,480  from holding HANOVER INSURANCE or generate 19.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

New Residential Investment  vs.  HANOVER INSURANCE

New Residential Inve

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, New Residential reported solid returns over the last few months and may actually be approaching a breakup point.

HANOVER INSURANCE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, HANOVER INSURANCE is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with New Residential and HANOVER INSURANCE

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

The idea behind New Residential Investment and HANOVER INSURANCE 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.