Correlation Between United Fire and CNA Financial

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

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

Diversification Opportunities for United Fire and CNA Financial

0.51

Correlation Coefficient

United Fire  CNA Financial

Very weak diversification

The 3 months correlation between United and CNA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and CNA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNA Financial and United Fire 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 United Fire Group are associated (or correlated) with CNA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNA Financial has no effect on the direction of United Fire i.e., United Fire and CNA Financial go up and down completely randomly.

Pair Corralation between United Fire and CNA Financial

Given the investment horizon of 90 days United Fire Group is expected to generate 3.04 times more return on investment than CNA Financial. However, United Fire is 3.04 times more volatile than CNA Financial. It trades about 0.12 of its potential returns per unit of risk. CNA Financial is currently generating about -0.02 per unit of risk. If you would invest  2,001  in United Fire Group on October 24, 2024 and sell it today you would earn a total of  549.00  from holding United Fire Group or generate 27.44% return on investment over 90 days.

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

United Fire Group  vs.  CNA Financial

United Fire Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

CNA Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with United Fire and CNA Financial

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

The idea behind United Fire Group and CNA 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.