Correlation Between Cincinnati Financial and EOG Resources

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

Diversification Opportunities for Cincinnati Financial and EOG Resources

0.28

Correlation Coefficient

Cincinnati Financial  EOG Resources

Modest diversification

The 3 months correlation between Cincinnati and EOG is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial Corp and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources 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 EOG Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EOG Resources has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and EOG Resources go up and down completely randomly.

Pair Corralation between Cincinnati Financial and EOG Resources

Assuming the 90 days trading horizon Cincinnati Financial Corp is expected to generate 0.79 times more return on investment than EOG Resources. However, Cincinnati Financial Corp is 1.27 times less risky than EOG Resources. It trades about 0.04 of its potential returns per unit of risk. EOG Resources is currently generating about 0.03 per unit of risk. If you would invest  10,013  in Cincinnati Financial Corp on October 27, 2024 and sell it today you would earn a total of  2,987  from holding Cincinnati Financial Corp or generate 29.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Cincinnati Financial Corp  vs.  EOG Resources

Cincinnati Financial Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cincinnati Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

EOG Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, EOG Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cincinnati Financial and EOG Resources

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

The idea behind Cincinnati Financial Corp and EOG Resources 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.