Correlation Between Cincinnati Financial and Chubb

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

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

Diversification Opportunities for Cincinnati Financial and Chubb

0.46

Correlation Coefficient

Cincinnati Financial  Chubb

Very weak diversification

The 3 months correlation between Cincinnati and Chubb is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Chubb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chubb 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 Chubb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chubb has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Chubb go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Chubb

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 1.13 times more return on investment than Chubb. However, Cincinnati Financial is 1.13 times more volatile than Chubb. It trades about 0.16 of its potential returns per unit of risk. Chubb is currently generating about 0.05 per unit of risk. If you would invest  11,698  in Cincinnati Financial on August 14, 2024 and sell it today you would earn a total of  3,420  from holding Cincinnati Financial or generate 29.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.2%
Values	Daily Returns

Cincinnati Financial  vs.  Chubb

Cincinnati Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cincinnati Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Chubb

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chubb are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Chubb is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cincinnati Financial and Chubb

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

The idea behind Cincinnati Financial and Chubb 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.