Correlation Between Microsoft and CINCINNATI

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

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

Diversification Opportunities for Microsoft and CINCINNATI

0.24

Correlation Coefficient

Microsoft  CINCINNATI

Modest diversification

The 3 months correlation between Microsoft and CINCINNATI is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CINCINNATI FINL P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CINCINNATI FINL P and Microsoft 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 Microsoft are associated (or correlated) with CINCINNATI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CINCINNATI FINL P has no effect on the direction of Microsoft i.e., Microsoft and CINCINNATI go up and down completely randomly.

Pair Corralation between Microsoft and CINCINNATI

Given the investment horizon of 90 days Microsoft is expected to under-perform the CINCINNATI. In addition to that, Microsoft is 4.1 times more volatile than CINCINNATI FINL P. It trades about -0.21 of its total potential returns per unit of risk. CINCINNATI FINL P is currently generating about 0.07 per unit of volatility. If you would invest  10,675  in CINCINNATI FINL P on December 1, 2024 and sell it today you would earn a total of  31.00  from holding CINCINNATI FINL P or generate 0.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

Microsoft  vs.  CINCINNATI FINL P

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

CINCINNATI FINL P

Risk-Adjusted Performance

Very Weak

Over the last 90 days CINCINNATI FINL P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CINCINNATI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and CINCINNATI

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

The idea behind Microsoft and CINCINNATI FINL P 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.