Correlation Between Cincinnati Financial and Freddie Mac

Can any of the company-specific risk be diversified away by investing in both Cincinnati Financial and Freddie Mac 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 Cincinnati Financial and Freddie Mac into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cincinnati Financial Corp and Freddie Mac, you can compare the effects of market volatilities on Cincinnati Financial and Freddie Mac 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 Cincinnati Financial with a short position of Freddie Mac. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cincinnati Financial and Freddie Mac.

Diversification Opportunities for Cincinnati Financial and Freddie Mac

0.62

Correlation Coefficient

Cincinnati Financial  Freddie Mac

Poor diversification

The 3 months correlation between Cincinnati and Freddie is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial Corp and Freddie Mac in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freddie Mac and Cincinnati Financial 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 Cincinnati Financial Corp are associated (or correlated) with Freddie Mac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freddie Mac has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Freddie Mac go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Freddie Mac

Assuming the 90 days trading horizon Cincinnati Financial Corp is expected to under-perform the Freddie Mac. But the stock apears to be less risky and, when comparing its historical volatility, Cincinnati Financial Corp is 8.94 times less risky than Freddie Mac. The stock trades about -0.27 of its potential returns per unit of risk. The Freddie Mac is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  282.00  in Freddie Mac on October 10, 2024 and sell it today you would earn a total of  167.00  from holding Freddie Mac or generate 59.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Cincinnati Financial Corp  vs.  Freddie Mac

Cincinnati Financial Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Freddie Mac

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Freddie Mac are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Freddie Mac unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cincinnati Financial and Freddie Mac

The main advantage of trading using opposite Cincinnati Financial and Freddie Mac positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cincinnati Financial position performs unexpectedly, Freddie Mac 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 Freddie Mac will offset losses from the drop in Freddie Mac's long position.

The idea behind Cincinnati Financial Corp and Freddie Mac 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..