Correlation Between BLUESCOPE STEEL and Hanover Insurance

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

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

Diversification Opportunities for BLUESCOPE STEEL and Hanover Insurance

0.4

Correlation Coefficient

BLUESCOPE STEEL  Hanover Insurance

Very weak diversification

The 3 months correlation between BLUESCOPE and Hanover is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding BLUESCOPE STEEL and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and BLUESCOPE STEEL 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 BLUESCOPE STEEL 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 BLUESCOPE STEEL i.e., BLUESCOPE STEEL and Hanover Insurance go up and down completely randomly.

Pair Corralation between BLUESCOPE STEEL and Hanover Insurance

Assuming the 90 days trading horizon BLUESCOPE STEEL is expected to generate 1.41 times less return on investment than Hanover Insurance. In addition to that, BLUESCOPE STEEL is 1.52 times more volatile than The Hanover Insurance. It trades about 0.1 of its total potential returns per unit of risk. The Hanover Insurance is currently generating about 0.21 per unit of volatility. If you would invest  13,014  in The Hanover Insurance on September 3, 2024 and sell it today you would earn a total of  2,786  from holding The Hanover Insurance or generate 21.41% return on investment over 90 days.

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

BLUESCOPE STEEL  vs.  The Hanover Insurance

BLUESCOPE STEEL

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BLUESCOPE STEEL are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BLUESCOPE STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Hanover Insurance

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 16 (%) 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 BLUESCOPE STEEL and Hanover Insurance

The main advantage of trading using opposite BLUESCOPE STEEL and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BLUESCOPE STEEL 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 BLUESCOPE STEEL 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.