Correlation Between Cincinnati Financial and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Cincinnati Financial and Discover 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 Cincinnati Financial and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cincinnati Financial Corp and Discover Financial Services, you can compare the effects of market volatilities on Cincinnati Financial and Discover 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 Cincinnati Financial with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cincinnati Financial and Discover Financial.
Diversification Opportunities for Cincinnati Financial and Discover Financial
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cincinnati and Discover is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial Corp and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Cincinnati Financial 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 Cincinnati Financial Corp are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Discover Financial go up and down completely randomly.
Pair Corralation between Cincinnati Financial and Discover Financial
Assuming the 90 days trading horizon Cincinnati Financial Corp is expected to generate 1.08 times more return on investment than Discover Financial. However, Cincinnati Financial is 1.08 times more volatile than Discover Financial Services. It trades about -0.01 of its potential returns per unit of risk. Discover Financial Services is currently generating about -0.16 per unit of risk. If you would invest 13,981 in Cincinnati Financial Corp on November 28, 2024 and sell it today you would lose (128.00) from holding Cincinnati Financial Corp or give up 0.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Cincinnati Financial Corp vs. Discover Financial Services
Performance |
| Timeline |
| Cincinnati Financial Corp |
| Discover Financial |
Cincinnati Financial and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cincinnati Financial and Discover Financial
The main advantage of trading using opposite Cincinnati Financial and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cincinnati Financial position performs unexpectedly, Discover 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 Discover Financial will offset losses from the drop in Discover Financial's long position.| Cincinnati Financial vs. Costco Wholesale Corp | Cincinnati Financial vs. Cairo Communication SpA | Cincinnati Financial vs. Rosslyn Data Technologies | Cincinnati Financial vs. Automatic Data Processing |
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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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