Correlation Between Arch Capital and Hartford Financial

Can any of the company-specific risk be diversified away by investing in both Arch Capital and Hartford 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 Arch Capital and Hartford Financial 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 The Hartford Financial, you can compare the effects of market volatilities on Arch Capital and Hartford 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 Arch Capital with a short position of Hartford Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arch Capital and Hartford Financial.

Diversification Opportunities for Arch Capital and Hartford Financial

0.47

Correlation Coefficient

Arch Capital  Hartford Financial

Very weak diversification

The 3 months correlation between Arch and Hartford is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and The Hartford Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Hartford Financial 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 Hartford Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Hartford Financial has no effect on the direction of Arch Capital i.e., Arch Capital and Hartford Financial go up and down completely randomly.

Pair Corralation between Arch Capital and Hartford Financial

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the Hartford Financial. In addition to that, Arch Capital is 3.3 times more volatile than The Hartford Financial. It trades about -0.02 of its total potential returns per unit of risk. The Hartford Financial is currently generating about 0.04 per unit of volatility. If you would invest  2,473  in The Hartford Financial on December 30, 2024 and sell it today you would earn a total of  18.00  from holding The Hartford Financial or generate 0.73% return on investment over 90 days.

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

Arch Capital Group  vs.  The Hartford Financial

Arch Capital Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Arch Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

The Hartford Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Hartford Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Hartford 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 Arch Capital and Hartford Financial

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

The idea behind Arch Capital Group and The Hartford 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.