Correlation Between AGL Energy and Cincinnati Financial

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

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

Diversification Opportunities for AGL Energy and Cincinnati Financial

0.71

Correlation Coefficient

AGL Energy  Cincinnati Financial

Poor diversification

The 3 months correlation between AGL and Cincinnati is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding AGL Energy Limited and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and AGL Energy 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 AGL Energy Limited 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 AGL Energy i.e., AGL Energy and Cincinnati Financial go up and down completely randomly.

Pair Corralation between AGL Energy and Cincinnati Financial

If you would invest  705.00  in AGL Energy Limited on October 8, 2024 and sell it today you would earn a total of  0.00  from holding AGL Energy Limited or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	5.26%
Values	Daily Returns

AGL Energy Limited  vs.  Cincinnati Financial

AGL Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AGL Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AGL Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Cincinnati Financial

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with AGL Energy and Cincinnati Financial

The main advantage of trading using opposite AGL Energy and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AGL Energy 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 AGL Energy Limited and Cincinnati Financial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.