Correlation Between CARSALES and Cincinnati Financial

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

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

Diversification Opportunities for CARSALES and Cincinnati Financial

0.91

Correlation Coefficient

CARSALES  Cincinnati Financial

Almost no diversification

The 3 months correlation between CARSALES and Cincinnati is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and CARSALES 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 CARSALESCOM 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 CARSALES i.e., CARSALES and Cincinnati Financial go up and down completely randomly.

Pair Corralation between CARSALES and Cincinnati Financial

Assuming the 90 days trading horizon CARSALES is expected to generate 1.72 times less return on investment than Cincinnati Financial. But when comparing it to its historical volatility, CARSALESCOM is 1.18 times less risky than Cincinnati Financial. It trades about 0.14 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

CARSALESCOM  vs.  Cincinnati Financial

CARSALESCOM

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CARSALES 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 CARSALES and Cincinnati Financial

The main advantage of trading using opposite CARSALES and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARSALES 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 CARSALESCOM 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.