Correlation Between London Security and Cincinnati Financial

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

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

Diversification Opportunities for London Security and Cincinnati Financial

-0.89

Correlation Coefficient

London Security  Cincinnati Financial

Pay attention - limited upside

The 3 months correlation between London and Cincinnati is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and Cincinnati Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial Corp and London Security 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 London Security 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 Corp has no effect on the direction of London Security i.e., London Security and Cincinnati Financial go up and down completely randomly.

Pair Corralation between London Security and Cincinnati Financial

Assuming the 90 days trading horizon London Security Plc is expected to under-perform the Cincinnati Financial. But the stock apears to be less risky and, when comparing its historical volatility, London Security Plc is 1.22 times less risky than Cincinnati Financial. The stock trades about -0.18 of its potential returns per unit of risk. The Cincinnati Financial Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  13,719  in Cincinnati Financial Corp on September 3, 2024 and sell it today you would earn a total of  2,088  from holding Cincinnati Financial Corp or generate 15.22% return on investment over 90 days.

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

London Security Plc  vs.  Cincinnati Financial Corp

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Cincinnati Financial Corp

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with London Security and Cincinnati Financial

The main advantage of trading using opposite London Security and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security 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 London Security Plc and Cincinnati Financial Corp 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.