Correlation Between Cincinnati Financial and Lincoln National

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

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

Diversification Opportunities for Cincinnati Financial and Lincoln National

0.48

Correlation Coefficient

Cincinnati Financial  Lincoln National

Very weak diversification

The 3 months correlation between Cincinnati and Lincoln is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Lincoln National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln National 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 Lincoln National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln National has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Lincoln National go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Lincoln National

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 2.57 times more return on investment than Lincoln National. However, Cincinnati Financial is 2.57 times more volatile than Lincoln National. It trades about 0.01 of its potential returns per unit of risk. Lincoln National is currently generating about -0.03 per unit of risk. If you would invest  13,746  in Cincinnati Financial on October 24, 2024 and sell it today you would earn a total of  55.00  from holding Cincinnati Financial or generate 0.4% return on investment over 90 days.

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

Cincinnati Financial  vs.  Lincoln National

Cincinnati Financial

Risk-Adjusted Performance

0 of 100

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.

Lincoln National

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cincinnati Financial and Lincoln National

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

The idea behind Cincinnati Financial and Lincoln National 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.