Correlation Between Cincinnati Financial and Zhihu

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

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

Diversification Opportunities for Cincinnati Financial and Zhihu

-0.23

Correlation Coefficient

Cincinnati Financial  Zhihu

Very good diversification

The 3 months correlation between Cincinnati and Zhihu is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Zhihu Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhihu Inc ADR 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 Zhihu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhihu Inc ADR has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Zhihu go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Zhihu

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 0.41 times more return on investment than Zhihu. However, Cincinnati Financial is 2.44 times less risky than Zhihu. It trades about 0.08 of its potential returns per unit of risk. Zhihu Inc ADR is currently generating about -0.01 per unit of risk. If you would invest  13,487  in Cincinnati Financial on September 27, 2024 and sell it today you would earn a total of  1,044  from holding Cincinnati Financial or generate 7.74% return on investment over 90 days.

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

Cincinnati Financial  vs.  Zhihu Inc ADR

Cincinnati Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Zhihu Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhihu Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Zhihu is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Cincinnati Financial and Zhihu

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

The idea behind Cincinnati Financial and Zhihu Inc ADR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.