Correlation Between CNA Financial and United Fire

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

By analyzing existing cross correlation between CNA Financial and United Fire Group, you can compare the effects of market volatilities on CNA Financial and United Fire 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 CNA Financial with a short position of United Fire. Check out your portfolio center. Please also check ongoing floating volatility patterns of CNA Financial and United Fire.

Diversification Opportunities for CNA Financial and United Fire

0.04

Correlation Coefficient

CNA Financial  United Fire

Significant diversification

The 3 months correlation between CNA and United is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding CNA Financial and United Fire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Fire Group and CNA 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 CNA Financial are associated (or correlated) with United Fire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Fire Group has no effect on the direction of CNA Financial i.e., CNA Financial and United Fire go up and down completely randomly.

Pair Corralation between CNA Financial and United Fire

Considering the 90-day investment horizon CNA Financial is expected to generate 0.65 times more return on investment than United Fire. However, CNA Financial is 1.53 times less risky than United Fire. It trades about 0.04 of its potential returns per unit of risk. United Fire Group is currently generating about 0.02 per unit of risk. If you would invest  4,847  in CNA Financial on December 26, 2024 and sell it today you would earn a total of  133.00  from holding CNA Financial or generate 2.74% return on investment over 90 days.

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

CNA Financial  vs.  United Fire Group

CNA Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNA Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CNA Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

United Fire Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, United Fire is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CNA Financial and United Fire

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

The idea behind CNA Financial and United Fire 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.