Correlation Between OBSERVE MEDICAL and HANOVER INSURANCE

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

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

Diversification Opportunities for OBSERVE MEDICAL and HANOVER INSURANCE

0.23

Correlation Coefficient

OBSERVE MEDICAL  HANOVER INSURANCE

Modest diversification

The 3 months correlation between OBSERVE and HANOVER is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding OBSERVE MEDICAL ASA and HANOVER INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HANOVER INSURANCE and OBSERVE MEDICAL 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 OBSERVE MEDICAL ASA 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 OBSERVE MEDICAL i.e., OBSERVE MEDICAL and HANOVER INSURANCE go up and down completely randomly.

Pair Corralation between OBSERVE MEDICAL and HANOVER INSURANCE

Assuming the 90 days trading horizon OBSERVE MEDICAL ASA is expected to generate 28.07 times more return on investment than HANOVER INSURANCE. However, OBSERVE MEDICAL is 28.07 times more volatile than HANOVER INSURANCE. It trades about 0.08 of its potential returns per unit of risk. HANOVER INSURANCE is currently generating about 0.09 per unit of risk. If you would invest  89.00  in OBSERVE MEDICAL ASA on October 22, 2024 and sell it today you would lose (59.00) from holding OBSERVE MEDICAL ASA or give up 66.29% of portfolio value over 90 days.

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

OBSERVE MEDICAL ASA  vs.  HANOVER INSURANCE

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OBSERVE MEDICAL ASA 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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

HANOVER INSURANCE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HANOVER INSURANCE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with OBSERVE MEDICAL and HANOVER INSURANCE

The main advantage of trading using opposite OBSERVE MEDICAL and HANOVER INSURANCE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OBSERVE MEDICAL 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 OBSERVE MEDICAL ASA 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.