Correlation Between Cincinnati Financial and Selective Insurance

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

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

Diversification Opportunities for Cincinnati Financial and Selective Insurance

0.53

Correlation Coefficient

Cincinnati Financial  Selective Insurance

Very weak diversification

The 3 months correlation between Cincinnati and Selective is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance 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 Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Selective Insurance go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Selective Insurance

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 0.69 times more return on investment than Selective Insurance. However, Cincinnati Financial is 1.44 times less risky than Selective Insurance. It trades about 0.03 of its potential returns per unit of risk. Selective Insurance Group is currently generating about -0.02 per unit of risk. If you would invest  14,290  in Cincinnati Financial on December 23, 2024 and sell it today you would earn a total of  272.00  from holding Cincinnati Financial or generate 1.9% 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.  Selective Insurance Group

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.

Selective Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Selective Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Selective Insurance is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Cincinnati Financial and Selective Insurance

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

The idea behind Cincinnati Financial and Selective Insurance Group 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.