Correlation Between Arch Capital and Allstate

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

Diversification Opportunities for Arch Capital and Allstate

0.83

Correlation Coefficient

Arch Capital  Allstate

Very poor diversification

The 3 months correlation between Arch and Allstate is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and The Allstate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allstate 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 Allstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allstate has no effect on the direction of Arch Capital i.e., Arch Capital and Allstate go up and down completely randomly.

Pair Corralation between Arch Capital and Allstate

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the Allstate. In addition to that, Arch Capital is 1.02 times more volatile than The Allstate. It trades about -0.31 of its total potential returns per unit of risk. The Allstate is currently generating about -0.12 per unit of volatility. If you would invest  2,091  in The Allstate on September 22, 2024 and sell it today you would lose (41.00) from holding The Allstate or give up 1.96% of portfolio value over 90 days.

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

Arch Capital Group  vs.  The Allstate

Arch Capital Group

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Preferred Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Allstate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Preferred Stock's essential indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Arch Capital and Allstate

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

The idea behind Arch Capital Group and The Allstate 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.