Correlation Between Cincinnati Financial and Bowhead Specialty

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

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

Diversification Opportunities for Cincinnati Financial and Bowhead Specialty

0.76

Correlation Coefficient

Cincinnati Financial  Bowhead Specialty

Poor diversification

The 3 months correlation between Cincinnati and Bowhead is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty 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 Bowhead Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bowhead Specialty has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Bowhead Specialty go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Bowhead Specialty

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 5.77 times less return on investment than Bowhead Specialty. But when comparing it to its historical volatility, Cincinnati Financial is 1.39 times less risky than Bowhead Specialty. It trades about 0.03 of its potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,448  in Bowhead Specialty Holdings on December 27, 2024 and sell it today you would earn a total of  588.00  from holding Bowhead Specialty Holdings or generate 17.05% return on investment over 90 days.

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

Cincinnati Financial  vs.  Bowhead Specialty Holdings

Cincinnati Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Bowhead Specialty

Risk-Adjusted Performance

OK

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

Pair Trading with Cincinnati Financial and Bowhead Specialty

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

The idea behind Cincinnati Financial and Bowhead Specialty Holdings 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 Stocks Directory module to find actively traded stocks across global markets.