Correlation Between Microsoft and Cincinnati Financial
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Cincinnati Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cincinnati Financial Corp, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cincinnati Financial.
Diversification Opportunities for Microsoft and Cincinnati Financial
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Cincinnati is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Cincinnati Financial go up and down completely randomly.
Pair Corralation between Microsoft and Cincinnati Financial
Assuming the 90 days trading horizon Microsoft is expected to generate 1.05 times more return on investment than Cincinnati Financial. However, Microsoft is 1.05 times more volatile than Cincinnati Financial Corp. It trades about 0.09 of its potential returns per unit of risk. Cincinnati Financial Corp is currently generating about 0.07 per unit of risk. If you would invest 21,744 in Microsoft on October 11, 2024 and sell it today you would earn a total of 19,356 from holding Microsoft or generate 89.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Cincinnati Financial Corp
Performance |
| Timeline |
| Microsoft |
| Cincinnati Financial Corp |
Microsoft and Cincinnati Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cincinnati Financial
The main advantage of trading using opposite Microsoft and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Scottish Mortgage Investment | Microsoft vs. Scandinavian Tobacco Group | Microsoft vs. JAPAN TOBACCO UNSPADR12 | Microsoft vs. MidCap Financial Investment |
| Cincinnati Financial vs. COMPUTERSHARE | Cincinnati Financial vs. Rocket Internet SE | Cincinnati Financial vs. Entravision Communications | Cincinnati Financial vs. Grand Canyon Education |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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