Correlation Between HANOVER INSURANCE and CECO ENVIRONMENTAL

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

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

Diversification Opportunities for HANOVER INSURANCE and CECO ENVIRONMENTAL

-0.36

Correlation Coefficient

HANOVER INSURANCE  CECO ENVIRONMENTAL

Very good diversification

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

Pair Corralation between HANOVER INSURANCE and CECO ENVIRONMENTAL

Assuming the 90 days trading horizon HANOVER INSURANCE is expected to generate 0.5 times more return on investment than CECO ENVIRONMENTAL. However, HANOVER INSURANCE is 2.01 times less risky than CECO ENVIRONMENTAL. It trades about 0.08 of its potential returns per unit of risk. CECO ENVIRONMENTAL is currently generating about -0.12 per unit of risk. If you would invest  14,519  in HANOVER INSURANCE on December 21, 2024 and sell it today you would earn a total of  1,181  from holding HANOVER INSURANCE or generate 8.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

HANOVER INSURANCE  vs.  CECO ENVIRONMENTAL

HANOVER INSURANCE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HANOVER INSURANCE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CECO ENVIRONMENTAL

Risk-Adjusted Performance

Very Weak

Over the last 90 days CECO ENVIRONMENTAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with HANOVER INSURANCE and CECO ENVIRONMENTAL

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

The idea behind HANOVER INSURANCE and CECO ENVIRONMENTAL 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.