Correlation Between Cincinnati Financial and Precision Drilling

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

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

Diversification Opportunities for Cincinnati Financial and Precision Drilling

-0.02

Correlation Coefficient

Cincinnati Financial  Precision Drilling

Good diversification

The 3 months correlation between Cincinnati and Precision is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling 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 Precision Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precision Drilling has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Precision Drilling go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Precision Drilling

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 0.6 times more return on investment than Precision Drilling. However, Cincinnati Financial is 1.66 times less risky than Precision Drilling. It trades about -0.1 of its potential returns per unit of risk. Precision Drilling is currently generating about -0.14 per unit of risk. If you would invest  15,213  in Cincinnati Financial on September 19, 2024 and sell it today you would lose (433.00) from holding Cincinnati Financial or give up 2.85% of portfolio value over 90 days.

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

Cincinnati Financial  vs.  Precision Drilling

Cincinnati Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 7 (%) 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.

Precision Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precision Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental 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 Cincinnati Financial and Precision Drilling

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

The idea behind Cincinnati Financial and Precision Drilling 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.