Correlation Between Allstate and Cincinnati Financial

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

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

Diversification Opportunities for Allstate and Cincinnati Financial

0.91

Correlation Coefficient

Allstate  Cincinnati Financial

Almost no diversification

The 3 months correlation between Allstate and Cincinnati is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Allstate 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 The Allstate 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 Allstate i.e., Allstate and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Allstate and Cincinnati Financial

Assuming the 90 days horizon Allstate is expected to generate 5.62 times less return on investment than Cincinnati Financial. In addition to that, Allstate is 1.19 times more volatile than Cincinnati Financial. It trades about 0.02 of its total potential returns per unit of risk. Cincinnati Financial is currently generating about 0.11 per unit of volatility. If you would invest  12,373  in Cincinnati Financial on October 13, 2024 and sell it today you would earn a total of  1,312  from holding Cincinnati Financial or generate 10.6% return on investment over 90 days.

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

The Allstate  vs.  Cincinnati Financial

Allstate

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Allstate is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cincinnati Financial

Risk-Adjusted Performance

8 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Allstate and Cincinnati Financial

The main advantage of trading using opposite Allstate and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allstate 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 The Allstate 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.