Correlation Between Sparebank and Cincinnati Financial
Can any of the company-specific risk be diversified away by investing in both Sparebank and Cincinnati 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 Sparebank and Cincinnati Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sparebank 1 SR and Cincinnati Financial Corp, you can compare the effects of market volatilities on Sparebank and Cincinnati 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 Sparebank with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Cincinnati Financial.
Diversification Opportunities for Sparebank and Cincinnati Financial
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sparebank and Cincinnati is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SR and Cincinnati Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial Corp and Sparebank 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 Sparebank 1 SR are associated (or correlated) with Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial Corp has no effect on the direction of Sparebank i.e., Sparebank and Cincinnati Financial go up and down completely randomly.
Pair Corralation between Sparebank and Cincinnati Financial
Assuming the 90 days trading horizon Sparebank is expected to generate 2.33 times less return on investment than Cincinnati Financial. But when comparing it to its historical volatility, Sparebank 1 SR is 1.49 times less risky than Cincinnati Financial. It trades about 0.06 of its potential returns per unit of risk. Cincinnati Financial Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 9,736 in Cincinnati Financial Corp on August 31, 2024 and sell it today you would earn a total of 6,196 from holding Cincinnati Financial Corp or generate 63.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 94.69% |
| Values | Daily Returns |
Sparebank 1 SR vs. Cincinnati Financial Corp
Performance |
| Timeline |
| Sparebank 1 SR |
| Cincinnati Financial Corp |
Sparebank and Cincinnati Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sparebank and Cincinnati Financial
The main advantage of trading using opposite Sparebank and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sparebank position performs unexpectedly, Cincinnati 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 Cincinnati Financial will offset losses from the drop in Cincinnati Financial's long position.| Sparebank vs. Neometals | Sparebank vs. Coor Service Management | Sparebank vs. Aeorema Communications Plc | Sparebank vs. JLEN Environmental Assets |
| Cincinnati Financial vs. Neometals | Cincinnati Financial vs. Coor Service Management | Cincinnati Financial vs. Aeorema Communications Plc | Cincinnati Financial vs. JLEN Environmental Assets |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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