Correlation Between Big Tree and Hanover Insurance

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

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

Diversification Opportunities for Big Tree and Hanover Insurance

-0.51

Correlation Coefficient

Big Tree  Hanover Insurance

Excellent diversification

The 3 months correlation between Big and Hanover is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Big Tree Cloud and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and Big Tree 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 Big Tree Cloud 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 Big Tree i.e., Big Tree and Hanover Insurance go up and down completely randomly.

Pair Corralation between Big Tree and Hanover Insurance

Assuming the 90 days horizon Big Tree Cloud is expected to generate 9.62 times more return on investment than Hanover Insurance. However, Big Tree is 9.62 times more volatile than The Hanover Insurance. It trades about 0.02 of its potential returns per unit of risk. The Hanover Insurance is currently generating about 0.06 per unit of risk. If you would invest  4.15  in Big Tree Cloud on September 16, 2024 and sell it today you would lose (1.16) from holding Big Tree Cloud or give up 27.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Big Tree Cloud  vs.  The Hanover Insurance

Big Tree Cloud

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big Tree Cloud are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Big Tree showed solid returns over the last few months and may actually be approaching a breakup point.

Hanover Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Hanover Insurance is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Big Tree and Hanover Insurance

The main advantage of trading using opposite Big Tree and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Tree 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 Big Tree Cloud 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.