Correlation Between HANOVER INSURANCE and PETROSEA

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

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

Diversification Opportunities for HANOVER INSURANCE and PETROSEA

0.72

Correlation Coefficient

HANOVER INSURANCE  PETROSEA

Poor diversification

The 3 months correlation between HANOVER and PETROSEA is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding HANOVER INSURANCE and PETROSEA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PETROSEA 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 HANOVER INSURANCE are associated (or correlated) with PETROSEA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PETROSEA has no effect on the direction of HANOVER INSURANCE i.e., HANOVER INSURANCE and PETROSEA go up and down completely randomly.

Pair Corralation between HANOVER INSURANCE and PETROSEA

Assuming the 90 days trading horizon HANOVER INSURANCE is expected to generate 5.49 times less return on investment than PETROSEA. But when comparing it to its historical volatility, HANOVER INSURANCE is 3.23 times less risky than PETROSEA. It trades about 0.16 of its potential returns per unit of risk. PETROSEA is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  80.00  in PETROSEA on September 29, 2024 and sell it today you would earn a total of  85.00  from holding PETROSEA or generate 106.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

HANOVER INSURANCE  vs.  PETROSEA

HANOVER INSURANCE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HANOVER INSURANCE exhibited solid returns over the last few months and may actually be approaching a breakup point.

PETROSEA

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PETROSEA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PETROSEA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HANOVER INSURANCE and PETROSEA

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

The idea behind HANOVER INSURANCE and PETROSEA 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.