Correlation Between Microchip Technology and HANOVER INSURANCE

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

By analyzing existing cross correlation between Microchip Technology Incorporated and HANOVER INSURANCE, you can compare the effects of market volatilities on Microchip Technology 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 Microchip Technology with a short position of HANOVER INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and HANOVER INSURANCE.

Diversification Opportunities for Microchip Technology and HANOVER INSURANCE

-0.71

Correlation Coefficient

Microchip Technology  HANOVER INSURANCE

Pay attention - limited upside

The 3 months correlation between Microchip and HANOVER is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and HANOVER INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HANOVER INSURANCE and Microchip Technology 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 Microchip Technology Incorporated 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 Microchip Technology i.e., Microchip Technology and HANOVER INSURANCE go up and down completely randomly.

Pair Corralation between Microchip Technology and HANOVER INSURANCE

Assuming the 90 days horizon Microchip Technology Incorporated is expected to under-perform the HANOVER INSURANCE. In addition to that, Microchip Technology is 2.07 times more volatile than HANOVER INSURANCE. It trades about -0.1 of its total potential returns per unit of risk. HANOVER INSURANCE is currently generating about 0.15 per unit of volatility. If you would invest  11,354  in HANOVER INSURANCE on September 27, 2024 and sell it today you would earn a total of  3,246  from holding HANOVER INSURANCE or generate 28.59% return on investment over 90 days.

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

Microchip Technology Incorpora  vs.  HANOVER INSURANCE

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

HANOVER INSURANCE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HANOVER INSURANCE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and HANOVER INSURANCE

The main advantage of trading using opposite Microchip Technology and HANOVER INSURANCE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology 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 Microchip Technology Incorporated and 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.