Correlation Between White Mountains and Cincinnati Financial

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

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

Diversification Opportunities for White Mountains and Cincinnati Financial

0.54

Correlation Coefficient

White Mountains  Cincinnati Financial

Very weak diversification

The 3 months correlation between White and Cincinnati is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding White Mountains Insurance and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial and White Mountains 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 White Mountains Insurance 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 White Mountains i.e., White Mountains and Cincinnati Financial go up and down completely randomly.

Pair Corralation between White Mountains and Cincinnati Financial

Considering the 90-day investment horizon White Mountains Insurance is expected to generate 0.81 times more return on investment than Cincinnati Financial. However, White Mountains Insurance is 1.24 times less risky than Cincinnati Financial. It trades about 0.12 of its potential returns per unit of risk. Cincinnati Financial is currently generating about -0.08 per unit of risk. If you would invest  175,400  in White Mountains Insurance on February 2, 2024 and sell it today you would earn a total of  6,974  from holding White Mountains Insurance or generate 3.98% return on investment over 90 days.

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

White Mountains Insurance  vs.  Cincinnati Financial

White Mountains Insurance

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in White Mountains Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, White Mountains displayed solid returns over the last few months and may actually be approaching a breakup point.

Cincinnati Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 4 (%) 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.

Pair Trading with White Mountains and Cincinnati Financial

The main advantage of trading using opposite White Mountains and Cincinnati Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if White Mountains 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 White Mountains Insurance 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..