Correlation Between Cincinnati Financial and Travelers Companies

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

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

Diversification Opportunities for Cincinnati Financial and Travelers Companies

0.65

Correlation Coefficient

Cincinnati Financial  Travelers Companies

Poor diversification

The 3 months correlation between Cincinnati and Travelers is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies 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 Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Travelers Companies go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Travelers Companies

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 3.3 times less return on investment than Travelers Companies. In addition to that, Cincinnati Financial is 1.08 times more volatile than The Travelers Companies. It trades about 0.03 of its total potential returns per unit of risk. The Travelers Companies is currently generating about 0.11 per unit of volatility. If you would invest  23,889  in The Travelers Companies on December 30, 2024 and sell it today you would earn a total of  2,290  from holding The Travelers Companies or generate 9.59% 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.  The Travelers Companies

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.

The Travelers Companies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Travelers Companies may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cincinnati Financial and Travelers Companies

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

The idea behind Cincinnati Financial and The Travelers Companies 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.