Correlation Between Fast Retailing and Hanover Insurance

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

By analyzing existing cross correlation between Fast Retailing Co and The Hanover Insurance, you can compare the effects of market volatilities on Fast Retailing and Hanover 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 Fast Retailing with a short position of Hanover Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and Hanover Insurance.

Diversification Opportunities for Fast Retailing and Hanover Insurance

-0.56

Correlation Coefficient

Fast Retailing  Hanover Insurance

Excellent diversification

The 3 months correlation between Fast and Hanover is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and Fast Retailing 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 Fast Retailing Co are associated (or correlated) with Hanover Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanover Insurance has no effect on the direction of Fast Retailing i.e., Fast Retailing and Hanover Insurance go up and down completely randomly.

Pair Corralation between Fast Retailing and Hanover Insurance

Assuming the 90 days horizon Fast Retailing Co is expected to under-perform the Hanover Insurance. In addition to that, Fast Retailing is 1.57 times more volatile than The Hanover Insurance. It trades about -0.01 of its total potential returns per unit of risk. The Hanover Insurance is currently generating about 0.26 per unit of volatility. If you would invest  15,348  in The Hanover Insurance on December 5, 2024 and sell it today you would earn a total of  1,616  from holding The Hanover Insurance or generate 10.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Fast Retailing Co  vs.  The Hanover Insurance

Fast Retailing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Hanover Insurance is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and Hanover Insurance

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

The idea behind Fast Retailing Co and The Hanover Insurance 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.