Correlation Between Progressive Corp and Cincinnati Financial

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

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

Diversification Opportunities for Progressive Corp and Cincinnati Financial

0.9

Correlation Coefficient

Progressive Corp  Cincinnati Financial

Almost no diversification

The 3 months correlation between Progressive and Cincinnati is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Progressive Corp and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and Progressive Corp 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 Progressive Corp 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 Corp i.e., Progressive Corp and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Progressive Corp and Cincinnati Financial

Considering the 90-day investment horizon Progressive Corp is expected to under-perform the Cincinnati Financial. But the stock apears to be less risky and, when comparing its historical volatility, Progressive Corp is 1.01 times less risky than Cincinnati Financial. The stock trades about -0.05 of its potential returns per unit of risk. The Cincinnati Financial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  13,577  in Cincinnati Financial on July 21, 2024 and sell it today you would earn a total of  563.00  from holding Cincinnati Financial or generate 4.15% return on investment over 90 days.

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

Progressive Corp  vs.  Cincinnati Financial

Progressive Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Progressive Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Progressive Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Cincinnati Financial

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 17 (%) 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.

Pair Trading with Progressive Corp and Cincinnati Financial

The main advantage of trading using opposite Progressive Corp and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Progressive Corp 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 Progressive Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.