Correlation Between Markel and Cincinnati Financial

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

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

Diversification Opportunities for Markel and Cincinnati Financial

0.96

Correlation Coefficient

Markel  Cincinnati Financial

Almost no diversification

The 3 months correlation between Markel and Cincinnati is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Markel and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Markel 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 Markel 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 Markel i.e., Markel and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Markel and Cincinnati Financial

Assuming the 90 days horizon Markel is expected to generate 0.81 times more return on investment than Cincinnati Financial. However, Markel is 1.24 times less risky than Cincinnati Financial. It trades about -0.14 of its potential returns per unit of risk. Cincinnati Financial is currently generating about -0.48 per unit of risk. If you would invest  167,300  in Markel on September 24, 2024 and sell it today you would lose (4,200) from holding Markel or give up 2.51% of portfolio value over 90 days.

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

Markel  vs.  Cincinnati Financial

Markel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Markel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Markel reported solid returns over the last few months and may actually be approaching a breakup point.

Cincinnati Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Markel and Cincinnati Financial

The main advantage of trading using opposite Markel and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Markel 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 Markel 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.