Correlation Between HCI and CNA Financial

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

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

Diversification Opportunities for HCI and CNA Financial

0.54

Correlation Coefficient

HCI  CNA Financial

Very weak diversification

The 3 months correlation between HCI and CNA is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding HCI Group and CNA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNA Financial and HCI 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 HCI Group are associated (or correlated) with CNA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNA Financial has no effect on the direction of HCI i.e., HCI and CNA Financial go up and down completely randomly.

Pair Corralation between HCI and CNA Financial

Considering the 90-day investment horizon HCI Group is expected to generate 1.56 times more return on investment than CNA Financial. However, HCI is 1.56 times more volatile than CNA Financial. It trades about 0.16 of its potential returns per unit of risk. CNA Financial is currently generating about 0.04 per unit of risk. If you would invest  11,807  in HCI Group on December 25, 2024 and sell it today you would earn a total of  2,296  from holding HCI Group or generate 19.45% return on investment over 90 days.

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

HCI Group  vs.  CNA Financial

HCI Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HCI Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, HCI demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CNA Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNA Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with HCI and CNA Financial

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

The idea behind HCI Group and CNA 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.

Check out your portfolio center.

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.