Correlation Between Cincinnati Financial and Zhihu

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

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

Diversification Opportunities for Cincinnati Financial and Zhihu

0.02

Correlation Coefficient

Cincinnati Financial  Zhihu

Significant diversification

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

Pair Corralation between Cincinnati Financial and Zhihu

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 13.55 times less return on investment than Zhihu. But when comparing it to its historical volatility, Cincinnati Financial is 3.13 times less risky than Zhihu. It trades about 0.03 of its potential returns per unit of risk. Zhihu Inc ADR is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  364.00  in Zhihu Inc ADR on December 22, 2024 and sell it today you would earn a total of  119.00  from holding Zhihu Inc ADR or generate 32.69% return on investment over 90 days.

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

Cincinnati Financial  vs.  Zhihu Inc ADR

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.

Zhihu Inc ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, Zhihu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cincinnati Financial and Zhihu

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

The idea behind Cincinnati Financial and Zhihu Inc ADR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.