Correlation Between Commonwealth Bank and Hanover Insurance
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank 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 Commonwealth Bank and Hanover Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Bank of and The Hanover Insurance, you can compare the effects of market volatilities on Commonwealth Bank 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 Commonwealth Bank with a short position of Hanover Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Hanover Insurance.
Diversification Opportunities for Commonwealth Bank and Hanover Insurance
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commonwealth and Hanover is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and The Hanover Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Insurance and Commonwealth Bank 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 Commonwealth Bank of 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 Commonwealth Bank i.e., Commonwealth Bank and Hanover Insurance go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Hanover Insurance
Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.96 times more return on investment than Hanover Insurance. However, Commonwealth Bank of is 1.05 times less risky than Hanover Insurance. It trades about 0.15 of its potential returns per unit of risk. The Hanover Insurance is currently generating about 0.11 per unit of risk. If you would invest 5,927 in Commonwealth Bank of on August 26, 2024 and sell it today you would earn a total of 3,773 from holding Commonwealth Bank of or generate 63.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank of vs. The Hanover Insurance
Performance |
| Timeline |
| Commonwealth Bank |
| Hanover Insurance |
Commonwealth Bank and Hanover Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Hanover Insurance
The main advantage of trading using opposite Commonwealth Bank and Hanover Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank 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.| Commonwealth Bank vs. Bank of China | Commonwealth Bank vs. Superior Plus Corp | Commonwealth Bank vs. NMI Holdings | Commonwealth Bank vs. Origin Agritech |
| Hanover Insurance vs. China Communications Services | Hanover Insurance vs. Enter Air SA | Hanover Insurance vs. Gamma Communications plc | Hanover Insurance vs. Singapore Telecommunications Limited |
Check out your portfolio center.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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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