Correlation Between Federal Agricultural and HANOVER INSURANCE

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

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

Diversification Opportunities for Federal Agricultural and HANOVER INSURANCE

0.93

Correlation Coefficient

Federal Agricultural  HANOVER INSURANCE

Almost no diversification

The 3 months correlation between Federal and HANOVER is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and HANOVER INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HANOVER INSURANCE and Federal Agricultural 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 Federal Agricultural Mortgage 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 Federal Agricultural i.e., Federal Agricultural and HANOVER INSURANCE go up and down completely randomly.

Pair Corralation between Federal Agricultural and HANOVER INSURANCE

Assuming the 90 days horizon Federal Agricultural is expected to generate 2.59 times less return on investment than HANOVER INSURANCE. In addition to that, Federal Agricultural is 1.49 times more volatile than HANOVER INSURANCE. It trades about 0.03 of its total potential returns per unit of risk. HANOVER INSURANCE is currently generating about 0.13 per unit of volatility. If you would invest  13,815  in HANOVER INSURANCE on October 7, 2024 and sell it today you would earn a total of  885.00  from holding HANOVER INSURANCE or generate 6.41% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  HANOVER INSURANCE

Federal Agricultural

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

HANOVER INSURANCE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, HANOVER INSURANCE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Federal Agricultural and HANOVER INSURANCE

The main advantage of trading using opposite Federal Agricultural and HANOVER INSURANCE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural 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 Federal Agricultural Mortgage 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.