Correlation Between Sparebank and Cincinnati Financial

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

By analyzing existing cross correlation between Sparebank 1 SR and Cincinnati Financial Corp, you can compare the effects of market volatilities on Sparebank 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 Sparebank with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Cincinnati Financial.

Diversification Opportunities for Sparebank and Cincinnati Financial

-0.7

Correlation Coefficient

Sparebank  Cincinnati Financial

Excellent diversification

The 3 months correlation between Sparebank and Cincinnati is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SR 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 Sparebank 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 Sparebank 1 SR 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 Sparebank i.e., Sparebank and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Sparebank and Cincinnati Financial

Assuming the 90 days trading horizon Sparebank 1 SR is expected to generate 0.56 times more return on investment than Cincinnati Financial. However, Sparebank 1 SR is 1.79 times less risky than Cincinnati Financial. It trades about 0.19 of its potential returns per unit of risk. Cincinnati Financial Corp is currently generating about -0.06 per unit of risk. If you would invest  14,400  in Sparebank 1 SR on December 2, 2024 and sell it today you would earn a total of  1,660  from holding Sparebank 1 SR or generate 11.53% return on investment over 90 days.

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

Sparebank 1 SR  vs.  Cincinnati Financial Corp

Sparebank 1 SR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cincinnati Financial Corp

Risk-Adjusted Performance

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 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 Sparebank and Cincinnati Financial

The main advantage of trading using opposite Sparebank and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sparebank 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 Sparebank 1 SR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.