Correlation Between Universal Insurance and HANOVER INSURANCE

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

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

Diversification Opportunities for Universal Insurance and HANOVER INSURANCE

0.7

Correlation Coefficient

Universal Insurance  HANOVER INSURANCE

Poor diversification

The 3 months correlation between Universal and HANOVER is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and HANOVER INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HANOVER INSURANCE and Universal 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 Universal Insurance Holdings 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 Universal Insurance i.e., Universal Insurance and HANOVER INSURANCE go up and down completely randomly.

Pair Corralation between Universal Insurance and HANOVER INSURANCE

Assuming the 90 days horizon Universal Insurance is expected to generate 1.13 times less return on investment than HANOVER INSURANCE. In addition to that, Universal Insurance is 2.12 times more volatile than HANOVER INSURANCE. It trades about 0.08 of its total potential returns per unit of risk. HANOVER INSURANCE is currently generating about 0.18 per unit of volatility. If you would invest  13,014  in HANOVER INSURANCE on September 4, 2024 and sell it today you would earn a total of  2,286  from holding HANOVER INSURANCE or generate 17.57% return on investment over 90 days.

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

Universal Insurance Holdings  vs.  HANOVER INSURANCE

Universal Insurance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Universal Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

HANOVER INSURANCE

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, HANOVER INSURANCE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Insurance and HANOVER INSURANCE

The main advantage of trading using opposite Universal Insurance and HANOVER INSURANCE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Insurance 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 Universal Insurance Holdings 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.

Check out your portfolio center.

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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .