Correlation Between Mercury General and Hanover Insurance

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

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

Diversification Opportunities for Mercury General and Hanover Insurance

-0.05

Correlation Coefficient

Mercury General  Hanover Insurance

Good diversification

The 3 months correlation between Mercury and Hanover is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Mercury General and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and Mercury General 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 Mercury General 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 Mercury General i.e., Mercury General and Hanover Insurance go up and down completely randomly.

Pair Corralation between Mercury General and Hanover Insurance

Considering the 90-day investment horizon Mercury General is expected to under-perform the Hanover Insurance. In addition to that, Mercury General is 2.42 times more volatile than The Hanover Insurance. It trades about -0.05 of its total potential returns per unit of risk. The Hanover Insurance is currently generating about 0.13 per unit of volatility. If you would invest  15,302  in The Hanover Insurance on December 29, 2024 and sell it today you would earn a total of  1,961  from holding The Hanover Insurance or generate 12.82% return on investment over 90 days.

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

Mercury General  vs.  The Hanover Insurance

Mercury General

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mercury General has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Hanover Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical indicators, Hanover Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercury General and Hanover Insurance

The main advantage of trading using opposite Mercury General and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercury General 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 Mercury General 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.