Correlation Between Cincinnati Financial and Franklin Resources

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

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

Diversification Opportunities for Cincinnati Financial and Franklin Resources

0.07

Correlation Coefficient

Cincinnati Financial  Franklin Resources

Significant diversification

The 3 months correlation between Cincinnati and Franklin is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Franklin Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Resources 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 Franklin Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Resources has no effect on the direction of Cincinnati Financial i.e., Cincinnati Financial and Franklin Resources go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Franklin Resources

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 0.84 times more return on investment than Franklin Resources. However, Cincinnati Financial is 1.19 times less risky than Franklin Resources. It trades about -0.03 of its potential returns per unit of risk. Franklin Resources is currently generating about -0.18 per unit of risk. If you would invest  12,076  in Cincinnati Financial on February 24, 2024 and sell it today you would lose (312.00) from holding Cincinnati Financial or give up 2.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.78%
Values	Daily Returns

Cincinnati Financial  vs.  Franklin Resources

Cincinnati Financial

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cincinnati Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Franklin Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cincinnati Financial and Franklin Resources

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

The idea behind Cincinnati Financial and Franklin Resources 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.