Correlation Between Hanover Insurance and ProAssurance

Can any of the company-specific risk be diversified away by investing in both Hanover Insurance and ProAssurance 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 ProAssurance 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 ProAssurance, you can compare the effects of market volatilities on Hanover Insurance and ProAssurance 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 ProAssurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanover Insurance and ProAssurance.

Diversification Opportunities for Hanover Insurance and ProAssurance

0.61

Correlation Coefficient

Hanover Insurance  ProAssurance

Poor diversification

The 3 months correlation between Hanover and ProAssurance is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding The Hanover Insurance and ProAssurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProAssurance 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 ProAssurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProAssurance has no effect on the direction of Hanover Insurance i.e., Hanover Insurance and ProAssurance go up and down completely randomly.

Pair Corralation between Hanover Insurance and ProAssurance

Considering the 90-day investment horizon Hanover Insurance is expected to generate 4.01 times less return on investment than ProAssurance. But when comparing it to its historical volatility, The Hanover Insurance is 4.22 times less risky than ProAssurance. It trades about 0.13 of its potential returns per unit of risk. ProAssurance is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,554  in ProAssurance on December 30, 2024 and sell it today you would earn a total of  780.00  from holding ProAssurance or generate 50.19% return on investment over 90 days.

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

The Hanover Insurance  vs.  ProAssurance

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.

ProAssurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProAssurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ProAssurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hanover Insurance and ProAssurance

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

The idea behind The Hanover Insurance and ProAssurance 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.