Correlation Between Hanover Insurance and Valhi

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

Diversification Opportunities for Hanover Insurance and Valhi

-0.55

Correlation Coefficient

Hanover Insurance  Valhi

Excellent diversification

The 3 months correlation between Hanover and Valhi is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Hanover Insurance and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Hanover Insurance i.e., Hanover Insurance and Valhi go up and down completely randomly.

Pair Corralation between Hanover Insurance and Valhi

Considering the 90-day investment horizon Hanover Insurance is expected to generate 1.56 times less return on investment than Valhi. But when comparing it to its historical volatility, The Hanover Insurance is 2.65 times less risky than Valhi. It trades about 0.03 of its potential returns per unit of risk. Valhi Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,103  in Valhi Inc on September 26, 2024 and sell it today you would earn a total of  100.00  from holding Valhi Inc or generate 4.76% return on investment over 90 days.

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

The Hanover Insurance  vs.  Valhi Inc

Hanover Insurance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical indicators, Hanover Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Hanover Insurance and Valhi

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

The idea behind The Hanover Insurance and Valhi Inc 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.