Correlation Between Topbuild Corp and Cincinnati Financial

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

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

Diversification Opportunities for Topbuild Corp and Cincinnati Financial

-0.33

Correlation Coefficient

Topbuild Corp  Cincinnati Financial

Very good diversification

The 3 months correlation between Topbuild and Cincinnati is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Topbuild Corp and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Topbuild Corp 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 Topbuild Corp 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 Topbuild Corp i.e., Topbuild Corp and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Topbuild Corp and Cincinnati Financial

Considering the 90-day investment horizon Topbuild Corp is expected to generate 1.6 times more return on investment than Cincinnati Financial. However, Topbuild Corp is 1.6 times more volatile than Cincinnati Financial. It trades about 0.07 of its potential returns per unit of risk. Cincinnati Financial is currently generating about 0.06 per unit of risk. If you would invest  15,792  in Topbuild Corp on September 24, 2024 and sell it today you would earn a total of  15,236  from holding Topbuild Corp or generate 96.48% return on investment over 90 days.

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

Topbuild Corp  vs.  Cincinnati Financial

Topbuild Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Topbuild Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Cincinnati Financial

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Topbuild Corp and Cincinnati Financial

The main advantage of trading using opposite Topbuild Corp and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Topbuild Corp 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 Topbuild Corp 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..