Correlation Between Cincinnati Financial and Berkshire Hathaway

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

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

Diversification Opportunities for Cincinnati Financial and Berkshire Hathaway

0.51

Correlation Coefficient

Cincinnati Financial  Berkshire Hathaway

Very weak diversification

The 3 months correlation between Cincinnati and Berkshire is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial Corp and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway and Cincinnati Financial 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 Cincinnati Financial Corp are associated (or correlated) with Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Berkshire Hathaway

Assuming the 90 days trading horizon Cincinnati Financial is expected to generate 1.34 times less return on investment than Berkshire Hathaway. In addition to that, Cincinnati Financial is 1.45 times more volatile than Berkshire Hathaway. It trades about 0.05 of its total potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.1 per unit of volatility. If you would invest  28,405  in Berkshire Hathaway on October 23, 2024 and sell it today you would earn a total of  17,225  from holding Berkshire Hathaway or generate 60.64% return on investment over 90 days.

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

Cincinnati Financial Corp  vs.  Berkshire Hathaway

Cincinnati Financial Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Berkshire Hathaway

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cincinnati Financial and Berkshire Hathaway

The main advantage of trading using opposite Cincinnati Financial and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cincinnati Financial position performs unexpectedly, Berkshire Hathaway 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 Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.

The idea behind Cincinnati Financial Corp and Berkshire Hathaway 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..