Correlation Between Hannover and Greenlight Capital

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

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

Diversification Opportunities for Hannover and Greenlight Capital

-0.2

Correlation Coefficient

Hannover  Greenlight Capital

Good diversification

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

Pair Corralation between Hannover and Greenlight Capital

Assuming the 90 days horizon Hannover Re is expected to generate 0.98 times more return on investment than Greenlight Capital. However, Hannover Re is 1.02 times less risky than Greenlight Capital. It trades about 0.21 of its potential returns per unit of risk. Greenlight Capital Re is currently generating about -0.03 per unit of risk. If you would invest  4,166  in Hannover Re on December 31, 2024 and sell it today you would earn a total of  830.00  from holding Hannover Re or generate 19.92% return on investment over 90 days.

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

Hannover Re  vs.  Greenlight Capital Re

Hannover Re

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hannover Re are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Hannover showed solid returns over the last few months and may actually be approaching a breakup point.

Greenlight Capital

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hannover and Greenlight Capital

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

The idea behind Hannover Re and Greenlight Capital Re 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.