Correlation Between Cincinnati Financial and Erste Group

Can any of the company-specific risk be diversified away by investing in both Cincinnati Financial and Erste Group 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 Erste Group 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 Erste Group Bank, you can compare the effects of market volatilities on Cincinnati Financial and Erste Group 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 Erste Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cincinnati Financial and Erste Group.

Diversification Opportunities for Cincinnati Financial and Erste Group

0.53

Correlation Coefficient

Cincinnati Financial  Erste Group

Very weak diversification

The 3 months correlation between Cincinnati and Erste is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial Corp and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank 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 Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Erste Group go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Erste Group

Assuming the 90 days trading horizon Cincinnati Financial Corp is expected to under-perform the Erste Group. In addition to that, Cincinnati Financial is 1.16 times more volatile than Erste Group Bank. It trades about -0.27 of its total potential returns per unit of risk. Erste Group Bank is currently generating about 0.3 per unit of volatility. If you would invest  5,492  in Erste Group Bank on October 8, 2024 and sell it today you would earn a total of  344.00  from holding Erste Group Bank or generate 6.26% 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.  Erste Group Bank

Cincinnati Financial Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Cincinnati Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Erste Group Bank

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cincinnati Financial and Erste Group

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

The idea behind Cincinnati Financial Corp and Erste Group Bank 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.