Correlation Between HANOVER INSURANCE and ELECTRONIC ARTS

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

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

Diversification Opportunities for HANOVER INSURANCE and ELECTRONIC ARTS

0.93

Correlation Coefficient

HANOVER INSURANCE  ELECTRONIC ARTS

Almost no diversification

The 3 months correlation between HANOVER and ELECTRONIC is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding HANOVER INSURANCE and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS and HANOVER INSURANCE 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 HANOVER INSURANCE are associated (or correlated) with ELECTRONIC ARTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELECTRONIC ARTS has no effect on the direction of HANOVER INSURANCE i.e., HANOVER INSURANCE and ELECTRONIC ARTS go up and down completely randomly.

Pair Corralation between HANOVER INSURANCE and ELECTRONIC ARTS

Assuming the 90 days trading horizon HANOVER INSURANCE is expected to generate 1.72 times less return on investment than ELECTRONIC ARTS. In addition to that, HANOVER INSURANCE is 1.11 times more volatile than ELECTRONIC ARTS. It trades about 0.03 of its total potential returns per unit of risk. ELECTRONIC ARTS is currently generating about 0.06 per unit of volatility. If you would invest  10,300  in ELECTRONIC ARTS on September 29, 2024 and sell it today you would earn a total of  3,968  from holding ELECTRONIC ARTS or generate 38.52% return on investment over 90 days.

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

HANOVER INSURANCE  vs.  ELECTRONIC ARTS

HANOVER INSURANCE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HANOVER INSURANCE exhibited solid returns over the last few months and may actually be approaching a breakup point.

ELECTRONIC ARTS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELECTRONIC ARTS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, ELECTRONIC ARTS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HANOVER INSURANCE and ELECTRONIC ARTS

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

The idea behind HANOVER INSURANCE and ELECTRONIC ARTS 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.