Correlation Between Cincinnati Financial and Amazon

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

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

Diversification Opportunities for Cincinnati Financial and Amazon

0.7

Correlation Coefficient

Cincinnati Financial  Amazon

Poor diversification

The 3 months correlation between Cincinnati and Amazon is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Amazon go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Amazon

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 7.51 times less return on investment than Amazon. But when comparing it to its historical volatility, Cincinnati Financial is 1.39 times less risky than Amazon. It trades about 0.01 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  11,477  in Amazon Inc on January 26, 2024 and sell it today you would earn a total of  6,182  from holding Amazon Inc or generate 53.86% return on investment over 90 days.

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

Cincinnati Financial  vs.  Amazon Inc

Cincinnati Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Amazon Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Cincinnati Financial and Amazon

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

The idea behind Cincinnati Financial and Amazon Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.