Correlation Between Cincinnati Financial and Park Ohio

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

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

Diversification Opportunities for Cincinnati Financial and Park Ohio

0.7

Correlation Coefficient

Cincinnati Financial  Park Ohio

Poor diversification

The 3 months correlation between Cincinnati and Park is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Park Ohio Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Ohio Holdings and Cincinnati Financial 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 Cincinnati Financial are associated (or correlated) with Park Ohio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Ohio Holdings has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Park Ohio go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Park Ohio

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 2.24 times less return on investment than Park Ohio. But when comparing it to its historical volatility, Cincinnati Financial is 1.9 times less risky than Park Ohio. It trades about 0.06 of its potential returns per unit of risk. Park Ohio Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,226  in Park Ohio Holdings on September 24, 2024 and sell it today you would earn a total of  1,383  from holding Park Ohio Holdings or generate 112.81% return on investment over 90 days.

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

Cincinnati Financial  vs.  Park Ohio Holdings

Cincinnati Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Park Ohio Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Park Ohio Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Cincinnati Financial and Park Ohio

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

The idea behind Cincinnati Financial and Park Ohio Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.