Correlation Between Leggett Platt and Cincinnati Financial
Can any of the company-specific risk be diversified away by investing in both Leggett Platt 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 Leggett Platt and Cincinnati Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leggett Platt Incorporated and Cincinnati Financial, you can compare the effects of market volatilities on Leggett Platt 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 Leggett Platt with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leggett Platt and Cincinnati Financial.
Diversification Opportunities for Leggett Platt and Cincinnati Financial
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Leggett and Cincinnati is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Leggett Platt Incorporated and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Leggett Platt 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 Leggett Platt Incorporated 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 Leggett Platt i.e., Leggett Platt and Cincinnati Financial go up and down completely randomly.
Pair Corralation between Leggett Platt and Cincinnati Financial
Considering the 90-day investment horizon Leggett Platt Incorporated is expected to under-perform the Cincinnati Financial. In addition to that, Leggett Platt is 1.59 times more volatile than Cincinnati Financial. It trades about -0.07 of its total potential returns per unit of risk. Cincinnati Financial is currently generating about 0.06 per unit of volatility. If you would invest 10,208 in Cincinnati Financial on August 24, 2024 and sell it today you would earn a total of 5,439 from holding Cincinnati Financial or generate 53.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Leggett Platt Incorporated vs. Cincinnati Financial
Performance |
| Timeline |
| Leggett Platt |
| Cincinnati Financial |
Leggett Platt and Cincinnati Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Leggett Platt and Cincinnati Financial
The main advantage of trading using opposite Leggett Platt and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leggett Platt 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 Leggett Platt Incorporated 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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