Correlation Between CATLIN GROUP and Cincinnati Financial

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

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

Diversification Opportunities for CATLIN GROUP and Cincinnati Financial

0.6

Correlation Coefficient

CATLIN GROUP  Cincinnati Financial

Poor diversification

The 3 months correlation between CATLIN and Cincinnati is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding CATLIN GROUP and Cincinnati Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial Corp and CATLIN GROUP 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 CATLIN GROUP 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 Corp has no effect on the direction of CATLIN GROUP i.e., CATLIN GROUP and Cincinnati Financial go up and down completely randomly.

Pair Corralation between CATLIN GROUP and Cincinnati Financial

Assuming the 90 days trading horizon CATLIN GROUP is expected to generate 0.52 times more return on investment than Cincinnati Financial. However, CATLIN GROUP is 1.92 times less risky than Cincinnati Financial. It trades about -0.04 of its potential returns per unit of risk. Cincinnati Financial Corp is currently generating about -0.06 per unit of risk. If you would invest  9,400  in CATLIN GROUP on December 1, 2024 and sell it today you would lose (200.00) from holding CATLIN GROUP or give up 2.13% of portfolio value over 90 days.

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

CATLIN GROUP   vs.  Cincinnati Financial Corp

CATLIN GROUP

Risk-Adjusted Performance

Very Weak

Over the last 90 days CATLIN GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, CATLIN GROUP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 uncertain 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.

Pair Trading with CATLIN GROUP and Cincinnati Financial

The main advantage of trading using opposite CATLIN GROUP and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CATLIN GROUP 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 CATLIN GROUP and Cincinnati Financial Corp 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.