Correlation Between Cincinnati Financial and Microsoft

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

Diversification Opportunities for Cincinnati Financial and Microsoft

0.45

Correlation Coefficient

Cincinnati Financial  Microsoft

Very weak diversification

The 3 months correlation between Cincinnati and Microsoft is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial Corp and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Microsoft go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Microsoft

Assuming the 90 days trading horizon Cincinnati Financial Corp is expected to generate 0.98 times more return on investment than Microsoft. However, Cincinnati Financial Corp is 1.02 times less risky than Microsoft. It trades about -0.1 of its potential returns per unit of risk. Microsoft is currently generating about -0.2 per unit of risk. If you would invest  14,336  in Cincinnati Financial Corp on December 11, 2024 and sell it today you would lose (1,346) from holding Cincinnati Financial Corp or give up 9.39% of portfolio value over 90 days.

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

Cincinnati Financial Corp  vs.  Microsoft

Cincinnati Financial Corp

Risk-Adjusted Performance

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 latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Cincinnati Financial and Microsoft

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

The idea behind Cincinnati Financial Corp and Microsoft 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.