Correlation Between Admiral Group and Cincinnati Financial

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

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

Diversification Opportunities for Admiral Group and Cincinnati Financial

-0.64

Correlation Coefficient

Admiral Group  Cincinnati Financial

Excellent diversification

The 3 months correlation between Admiral and Cincinnati is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Admiral Group plc and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Admiral Group 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 Admiral Group plc are associated (or correlated) with Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial has no effect on the direction of Admiral Group i.e., Admiral Group and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Admiral Group and Cincinnati Financial

Assuming the 90 days horizon Admiral Group plc is expected to under-perform the Cincinnati Financial. But the stock apears to be less risky and, when comparing its historical volatility, Admiral Group plc is 1.32 times less risky than Cincinnati Financial. The stock trades about -0.07 of its potential returns per unit of risk. The Cincinnati Financial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  12,050  in Cincinnati Financial on September 29, 2024 and sell it today you would earn a total of  1,875  from holding Cincinnati Financial or generate 15.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Admiral Group plc  vs.  Cincinnati Financial

Admiral Group plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Admiral Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Admiral Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cincinnati Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cincinnati Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Admiral Group and Cincinnati Financial

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

The idea behind Admiral Group plc and Cincinnati Financial 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.