Correlation Between Insurance Australia and Cincinnati Financial
Can any of the company-specific risk be diversified away by investing in both Insurance Australia 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 Insurance Australia and Cincinnati Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Insurance Australia Group and Cincinnati Financial, you can compare the effects of market volatilities on Insurance Australia 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 Insurance Australia with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and Cincinnati Financial.
Diversification Opportunities for Insurance Australia and Cincinnati Financial
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Insurance and Cincinnati is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Insurance Australia 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 Insurance Australia Group 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 Insurance Australia i.e., Insurance Australia and Cincinnati Financial go up and down completely randomly.
Pair Corralation between Insurance Australia and Cincinnati Financial
Assuming the 90 days horizon Insurance Australia is expected to generate 1.06 times less return on investment than Cincinnati Financial. In addition to that, Insurance Australia is 1.19 times more volatile than Cincinnati Financial. It trades about 0.31 of its total potential returns per unit of risk. Cincinnati Financial is currently generating about 0.39 per unit of volatility. If you would invest 12,925 in Cincinnati Financial on September 3, 2024 and sell it today you would earn a total of 2,285 from holding Cincinnati Financial or generate 17.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Insurance Australia Group vs. Cincinnati Financial
Performance |
| Timeline |
| Insurance Australia |
| Cincinnati Financial |
Insurance Australia and Cincinnati Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Insurance Australia and Cincinnati Financial
The main advantage of trading using opposite Insurance Australia and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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.| Insurance Australia vs. Japan Post Insurance | Insurance Australia vs. Reinsurance Group of | Insurance Australia vs. PREMIER FOODS | Insurance Australia vs. Universal Insurance Holdings |
| Cincinnati Financial vs. JJ SNACK FOODS | Cincinnati Financial vs. Taiwan Semiconductor Manufacturing | Cincinnati Financial vs. ELMOS SEMICONDUCTOR | Cincinnati Financial vs. MOLSON RS BEVERAGE |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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