Correlation Between Hanover Insurance and InPlay Oil

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

By analyzing existing cross correlation between The Hanover Insurance and InPlay Oil Corp, you can compare the effects of market volatilities on Hanover Insurance and InPlay Oil 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 InPlay Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanover Insurance and InPlay Oil.

Diversification Opportunities for Hanover Insurance and InPlay Oil

-0.46

Correlation Coefficient

Hanover Insurance  InPlay Oil

Very good diversification

The 3 months correlation between Hanover and InPlay is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding The Hanover Insurance and InPlay Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InPlay Oil Corp 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 The Hanover Insurance are associated (or correlated) with InPlay Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InPlay Oil Corp has no effect on the direction of Hanover Insurance i.e., Hanover Insurance and InPlay Oil go up and down completely randomly.

Pair Corralation between Hanover Insurance and InPlay Oil

Assuming the 90 days horizon The Hanover Insurance is expected to generate 0.71 times more return on investment than InPlay Oil. However, The Hanover Insurance is 1.41 times less risky than InPlay Oil. It trades about 0.08 of its potential returns per unit of risk. InPlay Oil Corp is currently generating about 0.02 per unit of risk. If you would invest  14,523  in The Hanover Insurance on December 30, 2024 and sell it today you would earn a total of  1,477  from holding The Hanover Insurance or generate 10.17% return on investment over 90 days.

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

The Hanover Insurance  vs.  InPlay Oil Corp

Hanover Insurance

Risk-Adjusted Performance

Modest

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

InPlay Oil Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in InPlay Oil Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, InPlay Oil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hanover Insurance and InPlay Oil

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

The idea behind The Hanover Insurance and InPlay Oil Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.