Correlation Between Progressive and Cincinnati Financial

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

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

Diversification Opportunities for Progressive and Cincinnati Financial

0.87

Correlation Coefficient

Progressive  Cincinnati Financial

Very poor diversification

The 3 months correlation between Progressive and Cincinnati is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding The Progressive and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Progressive 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 The Progressive 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 Progressive i.e., Progressive and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Progressive and Cincinnati Financial

Assuming the 90 days horizon Progressive is expected to generate 1.8 times less return on investment than Cincinnati Financial. But when comparing it to its historical volatility, The Progressive is 1.13 times less risky than Cincinnati Financial. It trades about 0.13 of its potential returns per unit of risk. Cincinnati Financial is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  12,268  in Cincinnati Financial on September 2, 2024 and sell it today you would earn a total of  2,942  from holding Cincinnati Financial or generate 23.98% return on investment over 90 days.

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

The Progressive  vs.  Cincinnati Financial

Progressive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Progressive are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Progressive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cincinnati Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Cincinnati Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Progressive and Cincinnati Financial

The main advantage of trading using opposite Progressive and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Progressive 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 The Progressive 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.