Correlation Between Pekin Life and Cincinnati Financial

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

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

Diversification Opportunities for Pekin Life and Cincinnati Financial

-0.1

Correlation Coefficient

Pekin Life  Cincinnati Financial

Good diversification

The 3 months correlation between Pekin and Cincinnati is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Pekin Life Insurance and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Pekin Life 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 Pekin Life Insurance 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 Pekin Life i.e., Pekin Life and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Pekin Life and Cincinnati Financial

Given the investment horizon of 90 days Pekin Life Insurance is not expected to generate positive returns. However, Pekin Life Insurance is 19.25 times less risky than Cincinnati Financial. It waists most of its returns potential to compensate for thr risk taken. Cincinnati Financial is generating about 0.09 per unit of risk. If you would invest  13,942  in Cincinnati Financial on November 29, 2024 and sell it today you would earn a total of  401.00  from holding Cincinnati Financial or generate 2.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Pekin Life Insurance  vs.  Cincinnati Financial

Pekin Life Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pekin Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Pekin Life is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Cincinnati Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cincinnati Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Pekin Life and Cincinnati Financial

The main advantage of trading using opposite Pekin Life and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pekin Life 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 Pekin Life Insurance 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.