Correlation Between HP and Cincinnati Financial
Can any of the company-specific risk be diversified away by investing in both HP 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 HP and Cincinnati Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Cincinnati Financial, you can compare the effects of market volatilities on HP 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 HP with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Cincinnati Financial.
Diversification Opportunities for HP and Cincinnati Financial
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between HP and Cincinnati is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and HP 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 HP Inc 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 has no effect on the direction of HP i.e., HP and Cincinnati Financial go up and down completely randomly.
Pair Corralation between HP and Cincinnati Financial
Considering the 90-day investment horizon HP Inc is expected to generate 1.26 times more return on investment than Cincinnati Financial. However, HP is 1.26 times more volatile than Cincinnati Financial. It trades about -0.19 of its potential returns per unit of risk. Cincinnati Financial is currently generating about -0.28 per unit of risk. If you would invest 3,615 in HP Inc on October 9, 2024 and sell it today you would lose (228.00) from holding HP Inc or give up 6.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HP Inc vs. Cincinnati Financial
Performance |
| Timeline |
| HP Inc |
| Cincinnati Financial |
HP and Cincinnati Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Cincinnati Financial
The main advantage of trading using opposite HP and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP 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.The idea behind HP Inc and Cincinnati Financial 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.| Cincinnati Financial vs. Progressive Corp | Cincinnati Financial vs. The Travelers Companies | Cincinnati Financial vs. Chubb | Cincinnati Financial vs. W R Berkley |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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