Correlation Between Sea and Cincinnati Financial

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

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

Diversification Opportunities for Sea and Cincinnati Financial

-0.35

Correlation Coefficient

Sea  Cincinnati Financial

Very good diversification

The 3 months correlation between Sea and Cincinnati is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Sea 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 Sea 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 Sea i.e., Sea and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Sea and Cincinnati Financial

Allowing for the 90-day total investment horizon Sea is expected to generate 1.43 times more return on investment than Cincinnati Financial. However, Sea is 1.43 times more volatile than Cincinnati Financial. It trades about 0.16 of its potential returns per unit of risk. Cincinnati Financial is currently generating about 0.13 per unit of risk. If you would invest  12,190  in Sea on December 5, 2024 and sell it today you would earn a total of  1,041  from holding Sea or generate 8.54% return on investment over 90 days.

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

Sea  vs.  Cincinnati Financial

Sea

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Sea and Cincinnati Financial

The main advantage of trading using opposite Sea and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.