Correlation Between International Consolidated and Cincinnati Financial
Can any of the company-specific risk be diversified away by investing in both International Consolidated 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 International Consolidated and Cincinnati Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Consolidated Airlines and Cincinnati Financial Corp, you can compare the effects of market volatilities on International Consolidated 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 International Consolidated with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and Cincinnati Financial.
Diversification Opportunities for International Consolidated and Cincinnati Financial
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between International and Cincinnati is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air 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 International Consolidated 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 International Consolidated Airlines 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 International Consolidated i.e., International Consolidated and Cincinnati Financial go up and down completely randomly.
Pair Corralation between International Consolidated and Cincinnati Financial
Assuming the 90 days trading horizon International Consolidated Airlines is expected to generate 0.92 times more return on investment than Cincinnati Financial. However, International Consolidated Airlines is 1.09 times less risky than Cincinnati Financial. It trades about 0.08 of its potential returns per unit of risk. Cincinnati Financial Corp is currently generating about 0.06 per unit of risk. If you would invest 12,916 in International Consolidated Airlines on September 4, 2024 and sell it today you would earn a total of 13,264 from holding International Consolidated Airlines or generate 102.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 91.6% |
| Values | Daily Returns |
International Consolidated Air vs. Cincinnati Financial Corp
Performance |
| Timeline |
| International Consolidated |
| Cincinnati Financial Corp |
International Consolidated and Cincinnati Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Consolidated and Cincinnati Financial
The main advantage of trading using opposite International Consolidated and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated 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 International Consolidated Airlines and Cincinnati Financial Corp 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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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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