Correlation Between Cincinnati Financial and Aeye

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

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

Diversification Opportunities for Cincinnati Financial and Aeye

-0.49

Correlation Coefficient

Cincinnati Financial  Aeye

Very good diversification

The 3 months correlation between Cincinnati and Aeye is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Aeye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeye Inc 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 Aeye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeye Inc has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Aeye go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Aeye

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 2.22 times less return on investment than Aeye. But when comparing it to its historical volatility, Cincinnati Financial is 3.35 times less risky than Aeye. It trades about 0.13 of its potential returns per unit of risk. Aeye Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  106.00  in Aeye Inc on September 12, 2024 and sell it today you would earn a total of  23.00  from holding Aeye Inc or generate 21.7% return on investment over 90 days.

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

Cincinnati Financial  vs.  Aeye Inc

Cincinnati Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aeye Inc

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aeye Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal fundamental indicators, Aeye reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cincinnati Financial and Aeye

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

The idea behind Cincinnati Financial and Aeye Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.