Correlation Between Berkshire Hathaway and Hartford Financial

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

By analyzing existing cross correlation between Berkshire Hathaway and Hartford Financial Services, you can compare the effects of market volatilities on Berkshire Hathaway and Hartford Financial 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 Berkshire Hathaway with a short position of Hartford Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Hartford Financial.

Diversification Opportunities for Berkshire Hathaway and Hartford Financial

0.92

Correlation Coefficient

Berkshire Hathaway  Hartford Financial

Almost no diversification

The 3 months correlation between Berkshire and Hartford is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Hartford Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Financial and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Hartford Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Financial has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Hartford Financial go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Hartford Financial

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 1.81 times less return on investment than Hartford Financial. But when comparing it to its historical volatility, Berkshire Hathaway is 1.3 times less risky than Hartford Financial. It trades about 0.1 of its potential returns per unit of risk. Hartford Financial Services is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,751  in Hartford Financial Services on January 20, 2024 and sell it today you would earn a total of  2,944  from holding Hartford Financial Services or generate 43.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

Berkshire Hathaway  vs.  Hartford Financial Services

Berkshire Hathaway

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Hartford Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hartford Financial Services are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Hartford Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Hartford Financial

The main advantage of trading using opposite Berkshire Hathaway and Hartford Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway position performs unexpectedly, Hartford Financial 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 Hartford Financial will offset losses from the drop in Hartford Financial's long position.

The idea behind Berkshire Hathaway and Hartford Financial Services 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 Global Correlations module to find global opportunities by holding instruments from different markets.