Correlation Between Arch Capital and Enstar Group

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

By analyzing existing cross correlation between Arch Capital Group and Enstar Group Limited, you can compare the effects of market volatilities on Arch Capital and Enstar Group 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 Arch Capital with a short position of Enstar Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arch Capital and Enstar Group.

Diversification Opportunities for Arch Capital and Enstar Group

-0.12

Correlation Coefficient

Arch Capital  Enstar Group

Good diversification

The 3 months correlation between Arch and Enstar is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Enstar Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enstar Group Limited and Arch Capital 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 Arch Capital Group are associated (or correlated) with Enstar Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enstar Group Limited has no effect on the direction of Arch Capital i.e., Arch Capital and Enstar Group go up and down completely randomly.

Pair Corralation between Arch Capital and Enstar Group

Given the investment horizon of 90 days Arch Capital Group is expected to generate 6.52 times more return on investment than Enstar Group. However, Arch Capital is 6.52 times more volatile than Enstar Group Limited. It trades about 0.07 of its potential returns per unit of risk. Enstar Group Limited is currently generating about 0.24 per unit of risk. If you would invest  9,189  in Arch Capital Group on December 28, 2024 and sell it today you would earn a total of  505.00  from holding Arch Capital Group or generate 5.5% return on investment over 90 days.

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

Arch Capital Group  vs.  Enstar Group Limited

Arch Capital Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Arch Capital is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Enstar Group Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enstar Group Limited are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Enstar Group is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Arch Capital and Enstar Group

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

The idea behind Arch Capital Group and Enstar Group Limited 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.