Correlation Between Scholastic and Hanover Insurance

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

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

Diversification Opportunities for Scholastic and Hanover Insurance

-0.5

Correlation Coefficient

Scholastic  Hanover Insurance

Very good diversification

The 3 months correlation between Scholastic and Hanover is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Scholastic and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and Scholastic 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 Scholastic 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 Scholastic i.e., Scholastic and Hanover Insurance go up and down completely randomly.

Pair Corralation between Scholastic and Hanover Insurance

Given the investment horizon of 90 days Scholastic is expected to under-perform the Hanover Insurance. In addition to that, Scholastic is 2.23 times more volatile than The Hanover Insurance. It trades about -0.06 of its total potential returns per unit of risk. The Hanover Insurance is currently generating about 0.14 per unit of volatility. If you would invest  14,644  in The Hanover Insurance on September 4, 2024 and sell it today you would earn a total of  1,608  from holding The Hanover Insurance or generate 10.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Scholastic  vs.  The Hanover Insurance

Scholastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scholastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Hanover Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Hanover Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical indicators, Hanover Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Scholastic and Hanover Insurance

The main advantage of trading using opposite Scholastic and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scholastic 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 Scholastic 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.