Correlation Between Hanover Insurance and TFS FINANCIAL

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

Diversification Opportunities for Hanover Insurance and TFS FINANCIAL

-0.09

Correlation Coefficient

Hanover Insurance  TFS FINANCIAL

Good diversification

The 3 months correlation between Hanover and TFS is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding The Hanover Insurance and TFS FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TFS FINANCIAL 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 TFS FINANCIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TFS FINANCIAL has no effect on the direction of Hanover Insurance i.e., Hanover Insurance and TFS FINANCIAL go up and down completely randomly.

Pair Corralation between Hanover Insurance and TFS FINANCIAL

Assuming the 90 days horizon The Hanover Insurance is expected to generate 1.15 times more return on investment than TFS FINANCIAL. However, Hanover Insurance is 1.15 times more volatile than TFS FINANCIAL. It trades about 0.08 of its potential returns per unit of risk. TFS FINANCIAL is currently generating about -0.02 per unit of risk. If you would invest  14,523  in The Hanover Insurance on December 29, 2024 and sell it today you would earn a total of  1,377  from holding The Hanover Insurance or generate 9.48% return on investment over 90 days.

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

The Hanover Insurance  vs.  TFS FINANCIAL

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

TFS FINANCIAL

Risk-Adjusted Performance

Very Weak

Over the last 90 days TFS FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, TFS FINANCIAL is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hanover Insurance and TFS FINANCIAL

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

The idea behind The Hanover Insurance and TFS FINANCIAL 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.