Correlation Between Hanover Insurance and Pekin Life

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

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

Diversification Opportunities for Hanover Insurance and Pekin Life

0.5

Correlation Coefficient

Hanover Insurance  Pekin Life

Very weak diversification

The 3 months correlation between Hanover and Pekin is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding The Hanover Insurance and Pekin Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pekin Life Insurance and Hanover Insurance 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 The Hanover Insurance are associated (or correlated) with Pekin Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pekin Life Insurance has no effect on the direction of Hanover Insurance i.e., Hanover Insurance and Pekin Life go up and down completely randomly.

Pair Corralation between Hanover Insurance and Pekin Life

Considering the 90-day investment horizon The Hanover Insurance is expected to generate 9.28 times more return on investment than Pekin Life. However, Hanover Insurance is 9.28 times more volatile than Pekin Life Insurance. It trades about 0.07 of its potential returns per unit of risk. Pekin Life Insurance is currently generating about 0.07 per unit of risk. If you would invest  12,711  in The Hanover Insurance on October 2, 2024 and sell it today you would earn a total of  2,702  from holding The Hanover Insurance or generate 21.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.56%
Values	Daily Returns

The Hanover Insurance  vs.  Pekin Life Insurance

Hanover Insurance

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 5 (%) 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.

Pekin Life Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pekin Life Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Pekin Life is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Hanover Insurance and Pekin Life

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

The idea behind The Hanover Insurance and Pekin Life 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.