Correlation Between Arch Capital and Old Republic

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

Diversification Opportunities for Arch Capital and Old Republic

-0.68

Correlation Coefficient

Arch Capital  Old Republic

Excellent diversification

The 3 months correlation between Arch and Old is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna 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 Old Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of Arch Capital i.e., Arch Capital and Old Republic go up and down completely randomly.

Pair Corralation between Arch Capital and Old Republic

Assuming the 90 days horizon Arch Capital is expected to generate 72.52 times less return on investment than Old Republic. But when comparing it to its historical volatility, Arch Capital Group is 1.71 times less risky than Old Republic. It trades about 0.0 of its potential returns per unit of risk. Old Republic International is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,549  in Old Republic International on September 2, 2024 and sell it today you would earn a total of  348.00  from holding Old Republic International or generate 9.81% return on investment over 90 days.

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

Arch Capital Group  vs.  Old Republic International

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 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.

Old Republic Interna

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Old Republic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arch Capital and Old Republic

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

The idea behind Arch Capital Group and Old Republic International 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.