Correlation Between Hanover Insurance and Mastercard

Can any of the company-specific risk be diversified away by investing in both Hanover Insurance and Mastercard 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 Mastercard 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 Mastercard, you can compare the effects of market volatilities on Hanover Insurance and Mastercard 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 Mastercard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanover Insurance and Mastercard.

Diversification Opportunities for Hanover Insurance and Mastercard

0.2

Correlation Coefficient

Hanover Insurance  Mastercard

Modest diversification

The 3 months correlation between Hanover and Mastercard is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding The Hanover Insurance and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard 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 Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of Hanover Insurance i.e., Hanover Insurance and Mastercard go up and down completely randomly.

Pair Corralation between Hanover Insurance and Mastercard

Assuming the 90 days horizon The Hanover Insurance is expected to generate 1.52 times more return on investment than Mastercard. However, Hanover Insurance is 1.52 times more volatile than Mastercard. It trades about 0.09 of its potential returns per unit of risk. Mastercard is currently generating about -0.02 per unit of risk. If you would invest  14,523  in The Hanover Insurance on December 21, 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 Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

The Hanover Insurance  vs.  Mastercard

Hanover Insurance

Risk-Adjusted Performance

Insignificant

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 fragile basic indicators, Hanover Insurance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Mastercard

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mastercard has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Mastercard 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 Mastercard

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

The idea behind The Hanover Insurance and Mastercard 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.