Correlation Between SBM Offshore and Cincinnati Financial

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

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

Diversification Opportunities for SBM Offshore and Cincinnati Financial

0.1

Correlation Coefficient

SBM Offshore  Cincinnati Financial

Average diversification

The 3 months correlation between SBM and Cincinnati is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV 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 SBM Offshore 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 SBM Offshore NV 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 SBM Offshore i.e., SBM Offshore and Cincinnati Financial go up and down completely randomly.

Pair Corralation between SBM Offshore and Cincinnati Financial

Assuming the 90 days trading horizon SBM Offshore NV is expected to generate 0.96 times more return on investment than Cincinnati Financial. However, SBM Offshore NV is 1.04 times less risky than Cincinnati Financial. It trades about 0.09 of its potential returns per unit of risk. Cincinnati Financial Corp is currently generating about 0.0 per unit of risk. If you would invest  1,666  in SBM Offshore NV on October 25, 2024 and sell it today you would earn a total of  145.00  from holding SBM Offshore NV or generate 8.7% return on investment over 90 days.

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

SBM Offshore NV  vs.  Cincinnati Financial Corp

SBM Offshore NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, SBM Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cincinnati Financial Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cincinnati Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SBM Offshore and Cincinnati Financial

The main advantage of trading using opposite SBM Offshore and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore 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 SBM Offshore NV and Cincinnati Financial Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.