Correlation Between Cincinnati Financial and ProAssurance

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

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

Diversification Opportunities for Cincinnati Financial and ProAssurance

0.9

Correlation Coefficient

Cincinnati Financial  ProAssurance

Almost no diversification

The 3 months correlation between Cincinnati and ProAssurance is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and ProAssurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProAssurance 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 ProAssurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProAssurance has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and ProAssurance go up and down completely randomly.

Pair Corralation between Cincinnati Financial and ProAssurance

Given the investment horizon of 90 days Cincinnati Financial is expected to under-perform the ProAssurance. In addition to that, Cincinnati Financial is 1.0 times more volatile than ProAssurance. It trades about -0.33 of its total potential returns per unit of risk. ProAssurance is currently generating about -0.17 per unit of volatility. If you would invest  1,673  in ProAssurance on September 28, 2024 and sell it today you would lose (77.00) from holding ProAssurance or give up 4.6% of portfolio value over 90 days.

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

Cincinnati Financial  vs.  ProAssurance

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.

ProAssurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProAssurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, ProAssurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cincinnati Financial and ProAssurance

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

The idea behind Cincinnati Financial and ProAssurance 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.