Correlation Between CNA Financial and Heritage Insurance

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

By analyzing existing cross correlation between CNA Financial and Heritage Insurance Hldgs, you can compare the effects of market volatilities on CNA Financial and Heritage Insurance 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 CNA Financial with a short position of Heritage Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNA Financial and Heritage Insurance.

Diversification Opportunities for CNA Financial and Heritage Insurance

0.61

Correlation Coefficient

CNA Financial  Heritage Insurance

Poor diversification

The 3 months correlation between CNA and Heritage is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CNA Financial and Heritage Insurance Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Insurance Hldgs and CNA Financial 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 CNA Financial are associated (or correlated) with Heritage Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Insurance Hldgs has no effect on the direction of CNA Financial i.e., CNA Financial and Heritage Insurance go up and down completely randomly.

Pair Corralation between CNA Financial and Heritage Insurance

Considering the 90-day investment horizon CNA Financial is expected to generate 4.74 times less return on investment than Heritage Insurance. But when comparing it to its historical volatility, CNA Financial is 4.59 times less risky than Heritage Insurance. It trades about 0.08 of its potential returns per unit of risk. Heritage Insurance Hldgs is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  824.00  in Heritage Insurance Hldgs on August 30, 2024 and sell it today you would earn a total of  412.00  from holding Heritage Insurance Hldgs or generate 50.0% return on investment over 90 days.

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

CNA Financial  vs.  Heritage Insurance Hldgs

CNA Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNA Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CNA Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Heritage Insurance Hldgs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Insurance Hldgs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CNA Financial and Heritage Insurance

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

The idea behind CNA Financial and Heritage Insurance Hldgs 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.