Correlation Between United Guardian and Hanover Insurance

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

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

Diversification Opportunities for United Guardian and Hanover Insurance

-0.77

Correlation Coefficient

United Guardian  Hanover Insurance

Pay attention - limited upside

The 3 months correlation between United and Hanover is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding United Guardian and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and United Guardian 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 United Guardian 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 United Guardian i.e., United Guardian and Hanover Insurance go up and down completely randomly.

Pair Corralation between United Guardian and Hanover Insurance

Allowing for the 90-day total investment horizon United Guardian is expected to generate 1.51 times less return on investment than Hanover Insurance. In addition to that, United Guardian is 2.34 times more volatile than The Hanover Insurance. It trades about 0.01 of its total potential returns per unit of risk. The Hanover Insurance is currently generating about 0.03 per unit of volatility. If you would invest  12,938  in The Hanover Insurance on October 4, 2024 and sell it today you would earn a total of  2,446  from holding The Hanover Insurance or generate 18.9% return on investment over 90 days.

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

United Guardian  vs.  The Hanover Insurance

United Guardian

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Guardian has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental 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

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 4 (%) 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.

Pair Trading with United Guardian and Hanover Insurance

The main advantage of trading using opposite United Guardian and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Guardian 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 United Guardian 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.