Correlation Between AUST AGRICULTURAL and Hanover Insurance

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

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

Diversification Opportunities for AUST AGRICULTURAL and Hanover Insurance

-0.26

Correlation Coefficient

AUST AGRICULTURAL  Hanover Insurance

Very good diversification

The 3 months correlation between AUST and Hanover is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding AUST AGRICULTURAL and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and AUST AGRICULTURAL 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 AUST AGRICULTURAL 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 AUST AGRICULTURAL i.e., AUST AGRICULTURAL and Hanover Insurance go up and down completely randomly.

Pair Corralation between AUST AGRICULTURAL and Hanover Insurance

Assuming the 90 days trading horizon AUST AGRICULTURAL is expected to generate 9.98 times less return on investment than Hanover Insurance. But when comparing it to its historical volatility, AUST AGRICULTURAL is 1.87 times less risky than Hanover Insurance. It trades about 0.06 of its potential returns per unit of risk. The Hanover Insurance is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  13,400  in The Hanover Insurance on September 5, 2024 and sell it today you would earn a total of  1,900  from holding The Hanover Insurance or generate 14.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

AUST AGRICULTURAL  vs.  The Hanover Insurance

AUST AGRICULTURAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUST AGRICULTURAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, AUST AGRICULTURAL is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Hanover Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hanover Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AUST AGRICULTURAL and Hanover Insurance

The main advantage of trading using opposite AUST AGRICULTURAL and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AUST AGRICULTURAL 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 AUST AGRICULTURAL 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.