Correlation Between Wyndham and Cincinnati Financial

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

By analyzing existing cross correlation between Wyndham Destinations 4625 and Cincinnati Financial, you can compare the effects of market volatilities on Wyndham 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 Wyndham with a short position of Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wyndham and Cincinnati Financial.

Diversification Opportunities for Wyndham and Cincinnati Financial

0.25

Correlation Coefficient

Wyndham  Cincinnati Financial

Modest diversification

The 3 months correlation between Wyndham and Cincinnati is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Wyndham Destinations 4625 and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Wyndham 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 Wyndham Destinations 4625 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 Wyndham i.e., Wyndham and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Wyndham and Cincinnati Financial

Assuming the 90 days trading horizon Wyndham Destinations 4625 is expected to under-perform the Cincinnati Financial. But the bond apears to be less risky and, when comparing its historical volatility, Wyndham Destinations 4625 is 3.3 times less risky than Cincinnati Financial. The bond trades about -0.1 of its potential returns per unit of risk. The Cincinnati Financial is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  14,045  in Cincinnati Financial on October 25, 2024 and sell it today you would lose (244.00) from holding Cincinnati Financial or give up 1.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	83.33%
Values	Daily Returns

Wyndham Destinations 4625  vs.  Cincinnati Financial

Wyndham Destinations 4625

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wyndham Destinations 4625 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Wyndham is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Cincinnati Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cincinnati Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Wyndham and Cincinnati Financial

The main advantage of trading using opposite Wyndham and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wyndham 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 Wyndham Destinations 4625 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.