Correlation Between HANOVER INSURANCE and Sumitomo

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

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

Diversification Opportunities for HANOVER INSURANCE and Sumitomo

0.32

Correlation Coefficient

HANOVER INSURANCE  Sumitomo

Weak diversification

The 3 months correlation between HANOVER and Sumitomo is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding HANOVER INSURANCE and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo 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 Sumitomo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo has no effect on the direction of HANOVER INSURANCE i.e., HANOVER INSURANCE and Sumitomo go up and down completely randomly.

Pair Corralation between HANOVER INSURANCE and Sumitomo

Assuming the 90 days trading horizon HANOVER INSURANCE is expected to generate 0.69 times more return on investment than Sumitomo. However, HANOVER INSURANCE is 1.44 times less risky than Sumitomo. It trades about 0.06 of its potential returns per unit of risk. Sumitomo is currently generating about 0.04 per unit of risk. If you would invest  15,107  in HANOVER INSURANCE on December 3, 2024 and sell it today you would earn a total of  793.00  from holding HANOVER INSURANCE or generate 5.25% return on investment over 90 days.

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

HANOVER INSURANCE  vs.  Sumitomo

HANOVER INSURANCE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 4 (%) 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.

Sumitomo

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Sumitomo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HANOVER INSURANCE and Sumitomo

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

The idea behind HANOVER INSURANCE and Sumitomo 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 Transaction History module to view history of all your transactions and understand their impact on performance.