Correlation Between Summit Hotel and Hanover Insurance

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Can any of the company-specific risk be diversified away by investing in both Summit Hotel 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 Summit Hotel and Hanover Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Summit Hotel Properties and The Hanover Insurance, you can compare the effects of market volatilities on Summit Hotel 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 Summit Hotel with a short position of Hanover Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Hotel and Hanover Insurance.

Diversification Opportunities for Summit Hotel and Hanover Insurance

-0.14
  Correlation Coefficient

Good diversification

The 3 months correlation between Summit and Hanover is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and Summit Hotel 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 Summit Hotel Properties 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 Summit Hotel i.e., Summit Hotel and Hanover Insurance go up and down completely randomly.

Pair Corralation between Summit Hotel and Hanover Insurance

Considering the 90-day investment horizon Summit Hotel is expected to generate 1.26 times less return on investment than Hanover Insurance. In addition to that, Summit Hotel is 1.51 times more volatile than The Hanover Insurance. It trades about 0.08 of its total potential returns per unit of risk. The Hanover Insurance is currently generating about 0.15 per unit of volatility. If you would invest  12,080  in The Hanover Insurance on September 23, 2024 and sell it today you would earn a total of  3,313  from holding The Hanover Insurance or generate 27.43% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Summit Hotel Properties  vs.  The Hanover Insurance

 Performance 
       Timeline  
Summit Hotel Properties 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Summit Hotel Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Summit Hotel is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Hanover Insurance 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 4 (%) 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.

Summit Hotel and Hanover Insurance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Summit Hotel and Hanover Insurance

The main advantage of trading using opposite Summit Hotel and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Hotel 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 Summit Hotel Properties 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.
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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