Correlation Between HANOVER INSURANCE and Mercedes Benz

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

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

Diversification Opportunities for HANOVER INSURANCE and Mercedes Benz

-0.87

Correlation Coefficient

HANOVER INSURANCE  Mercedes Benz

Pay attention - limited upside

The 3 months correlation between HANOVER and Mercedes is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding HANOVER INSURANCE and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz Group 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 Mercedes Benz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of HANOVER INSURANCE i.e., HANOVER INSURANCE and Mercedes Benz go up and down completely randomly.

Pair Corralation between HANOVER INSURANCE and Mercedes Benz

Assuming the 90 days trading horizon HANOVER INSURANCE is expected to generate 1.07 times more return on investment than Mercedes Benz. However, HANOVER INSURANCE is 1.07 times more volatile than Mercedes Benz Group AG. It trades about 0.07 of its potential returns per unit of risk. Mercedes Benz Group AG is currently generating about -0.03 per unit of risk. If you would invest  10,427  in HANOVER INSURANCE on September 14, 2024 and sell it today you would earn a total of  4,273  from holding HANOVER INSURANCE or generate 40.98% return on investment over 90 days.

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

HANOVER INSURANCE  vs.  Mercedes Benz Group AG

HANOVER INSURANCE

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HANOVER INSURANCE are ranked lower than 10 (%) 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.

Mercedes Benz Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercedes Benz Group AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Mercedes Benz is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HANOVER INSURANCE and Mercedes Benz

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

The idea behind HANOVER INSURANCE and Mercedes Benz Group AG 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.