Correlation Between Arch Capital and Argo Group

Can any of the company-specific risk be diversified away by investing in both Arch Capital and Argo 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 Argo 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 Argo Group 65, you can compare the effects of market volatilities on Arch Capital and Argo 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 Argo Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arch Capital and Argo Group.

Diversification Opportunities for Arch Capital and Argo Group

0.09

Correlation Coefficient

Arch Capital  Argo Group

Significant diversification

The 3 months correlation between Arch and Argo is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Argo Group 65 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Argo Group 65 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 Argo Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Argo Group 65 has no effect on the direction of Arch Capital i.e., Arch Capital and Argo Group go up and down completely randomly.

Pair Corralation between Arch Capital and Argo Group

Assuming the 90 days horizon Arch Capital Group is expected to generate 1.1 times more return on investment than Argo Group. However, Arch Capital is 1.1 times more volatile than Argo Group 65. It trades about 0.01 of its potential returns per unit of risk. Argo Group 65 is currently generating about 0.01 per unit of risk. If you would invest  2,101  in Arch Capital Group on December 27, 2024 and sell it today you would earn a total of  3.00  from holding Arch Capital Group or generate 0.14% return on investment over 90 days.

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

Arch Capital Group  vs.  Argo Group 65

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 current stock price disarray, may contribute to short-term losses for the investors.

Argo Group 65

Risk-Adjusted Performance

Very Weak

Over the last 90 days Argo Group 65 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Argo Group is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Arch Capital and Argo Group

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

The idea behind Arch Capital Group and Argo Group 65 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.