Correlation Between Cincinnati Financial and NORFOLK

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

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

Diversification Opportunities for Cincinnati Financial and NORFOLK

0.41

Correlation Coefficient

Cincinnati Financial  NORFOLK

Very weak diversification

The 3 months correlation between Cincinnati and NORFOLK is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P 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 NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and NORFOLK go up and down completely randomly.

Pair Corralation between Cincinnati Financial and NORFOLK

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 1.16 times more return on investment than NORFOLK. However, Cincinnati Financial is 1.16 times more volatile than NORFOLK SOUTHN P. It trades about -0.08 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about -0.31 per unit of risk. If you would invest  14,785  in Cincinnati Financial on October 9, 2024 and sell it today you would lose (610.00) from holding Cincinnati Financial or give up 4.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	35.0%
Values	Daily Returns

Cincinnati Financial  vs.  NORFOLK SOUTHN P

Cincinnati Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 5 (%) 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 February 2025.

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for NORFOLK SOUTHN P investors.

Pair Trading with Cincinnati Financial and NORFOLK

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

The idea behind Cincinnati Financial and NORFOLK SOUTHN P 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.