Correlation Between Arch Capital and Brighthouse Financial

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

Diversification Opportunities for Arch Capital and Brighthouse Financial

0.86

Correlation Coefficient

Arch Capital  Brighthouse Financial

Very poor diversification

The 3 months correlation between Arch and Brighthouse is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse 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 Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of Arch Capital i.e., Arch Capital and Brighthouse Financial go up and down completely randomly.

Pair Corralation between Arch Capital and Brighthouse Financial

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the Brighthouse Financial. But the preferred stock apears to be less risky and, when comparing its historical volatility, Arch Capital Group is 1.55 times less risky than Brighthouse Financial. The preferred stock trades about -0.31 of its potential returns per unit of risk. The Brighthouse Financial is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  1,901  in Brighthouse Financial on September 22, 2024 and sell it today you would lose (74.00) from holding Brighthouse Financial or give up 3.89% 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.  Brighthouse Financial

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.

Brighthouse Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brighthouse Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Preferred Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Arch Capital and Brighthouse Financial

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

The idea behind Arch Capital Group and Brighthouse 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.