Correlation Between Cincinnati Financial and Volkswagen

Can any of the company-specific risk be diversified away by investing in both Cincinnati Financial and Volkswagen 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 Volkswagen 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 Volkswagen AG, you can compare the effects of market volatilities on Cincinnati Financial and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cincinnati Financial and Volkswagen.

Diversification Opportunities for Cincinnati Financial and Volkswagen

-0.92

Correlation Coefficient

Cincinnati Financial  Volkswagen

Pay attention - limited upside

The 3 months correlation between Cincinnati and Volkswagen is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial Corp and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Volkswagen go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Volkswagen

Assuming the 90 days trading horizon Cincinnati Financial Corp is expected to generate 0.99 times more return on investment than Volkswagen. However, Cincinnati Financial Corp is 1.01 times less risky than Volkswagen. It trades about 0.06 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.08 per unit of risk. If you would invest  13,407  in Cincinnati Financial Corp on October 8, 2024 and sell it today you would earn a total of  761.00  from holding Cincinnati Financial Corp or generate 5.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Cincinnati Financial Corp  vs.  Volkswagen AG

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 uncertain basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Cincinnati Financial and Volkswagen

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

The idea behind Cincinnati Financial Corp and Volkswagen AG 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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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.