Correlation Between Cincinnati Financial and Better Home

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

By analyzing existing cross correlation between Cincinnati Financial and Better Home Finance, you can compare the effects of market volatilities on Cincinnati Financial and Better Home 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 Better Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cincinnati Financial and Better Home.

Diversification Opportunities for Cincinnati Financial and Better Home

-0.47

Correlation Coefficient

Cincinnati Financial  Better Home

Very good diversification

The 3 months correlation between Cincinnati and Better is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Better Home Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Better Home Finance 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 are associated (or correlated) with Better Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Better Home Finance has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Better Home go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Better Home

Given the investment horizon of 90 days Cincinnati Financial is expected to under-perform the Better Home. But the stock apears to be less risky and, when comparing its historical volatility, Cincinnati Financial is 13.67 times less risky than Better Home. The stock trades about -0.05 of its potential returns per unit of risk. The Better Home Finance is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9.95  in Better Home Finance on December 4, 2024 and sell it today you would lose (3.97) from holding Better Home Finance or give up 39.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	52.54%
Values	Daily Returns

Cincinnati Financial  vs.  Better Home Finance

Cincinnati Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cincinnati Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Better Home Finance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Better Home Finance are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Better Home showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cincinnati Financial and Better Home

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

The idea behind Cincinnati Financial and Better Home Finance 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.