Correlation Between American Financial and Bowhead Specialty

Can any of the company-specific risk be diversified away by investing in both American Financial and Bowhead Specialty 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 American Financial and Bowhead Specialty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Financial Group and Bowhead Specialty Holdings, you can compare the effects of market volatilities on American Financial and Bowhead Specialty 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 American Financial with a short position of Bowhead Specialty. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Financial and Bowhead Specialty.

Diversification Opportunities for American Financial and Bowhead Specialty

0.0

Correlation Coefficient

American Financial  Bowhead Specialty

Pay attention - limited upside

The 3 months correlation between American and Bowhead is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and American Financial 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 American Financial Group are associated (or correlated) with Bowhead Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bowhead Specialty has no effect on the direction of American Financial i.e., American Financial and Bowhead Specialty go up and down completely randomly.

Pair Corralation between American Financial and Bowhead Specialty

Considering the 90-day investment horizon American Financial Group is expected to under-perform the Bowhead Specialty. But the stock apears to be less risky and, when comparing its historical volatility, American Financial Group is 1.49 times less risky than Bowhead Specialty. The stock trades about -0.04 of its potential returns per unit of risk. The Bowhead Specialty Holdings is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,455  in Bowhead Specialty Holdings on December 29, 2024 and sell it today you would earn a total of  645.00  from holding Bowhead Specialty Holdings or generate 18.67% return on investment over 90 days.

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

American Financial Group  vs.  Bowhead Specialty Holdings

American Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, American Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Bowhead Specialty

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Bowhead Specialty showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Financial and Bowhead Specialty

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

The idea behind American Financial Group and Bowhead Specialty Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.