Correlation Between Cincinnati Financial and Volaris

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

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

Diversification Opportunities for Cincinnati Financial and Volaris

0.86

Correlation Coefficient

Cincinnati Financial  Volaris

Very poor diversification

The 3 months correlation between Cincinnati and Volaris is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Volaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volaris 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 Volaris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volaris has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Volaris go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Volaris

Given the investment horizon of 90 days Cincinnati Financial is expected to under-perform the Volaris. But the stock apears to be less risky and, when comparing its historical volatility, Cincinnati Financial is 1.47 times less risky than Volaris. The stock trades about -0.1 of its potential returns per unit of risk. The Volaris is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  822.00  in Volaris on September 19, 2024 and sell it today you would earn a total of  16.00  from holding Volaris or generate 1.95% return on investment over 90 days.

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

Cincinnati Financial  vs.  Volaris

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.

Volaris

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volaris are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Volaris unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cincinnati Financial and Volaris

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

The idea behind Cincinnati Financial and Volaris 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.