Correlation Between Toyota and Cincinnati Financial

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

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

Diversification Opportunities for Toyota and Cincinnati Financial

0.56

Correlation Coefficient

Toyota  Cincinnati Financial

Very weak diversification

The 3 months correlation between Toyota and Cincinnati is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp 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 Toyota 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 Toyota Motor Corp 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 Toyota i.e., Toyota and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Toyota and Cincinnati Financial

Assuming the 90 days trading horizon Toyota is expected to generate 1.42 times less return on investment than Cincinnati Financial. In addition to that, Toyota is 1.15 times more volatile than Cincinnati Financial Corp. It trades about 0.08 of its total potential returns per unit of risk. Cincinnati Financial Corp is currently generating about 0.12 per unit of volatility. If you would invest  13,417  in Cincinnati Financial Corp on September 12, 2024 and sell it today you would earn a total of  1,607  from holding Cincinnati Financial Corp or generate 11.98% return on investment over 90 days.

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

Toyota Motor Corp  vs.  Cincinnati Financial Corp

Toyota Motor Corp

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cincinnati Financial Corp

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Toyota and Cincinnati Financial

The main advantage of trading using opposite Toyota and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota 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 Toyota Motor Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.