Correlation Between Allstate and Bowhead Specialty

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

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

Diversification Opportunities for Allstate and Bowhead Specialty

0.81

Correlation Coefficient

Allstate  Bowhead Specialty

Very poor diversification

The 3 months correlation between Allstate and Bowhead is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and Allstate 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 The Allstate 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 Allstate i.e., Allstate and Bowhead Specialty go up and down completely randomly.

Pair Corralation between Allstate and Bowhead Specialty

Considering the 90-day investment horizon The Allstate is expected to generate 0.84 times more return on investment than Bowhead Specialty. However, The Allstate is 1.19 times less risky than Bowhead Specialty. It trades about -0.02 of its potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about -0.06 per unit of risk. If you would invest  20,439  in The Allstate on December 1, 2024 and sell it today you would lose (524.00) from holding The Allstate or give up 2.56% of portfolio value over 90 days.

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

The Allstate  vs.  Bowhead Specialty Holdings

Allstate

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Allstate is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Bowhead Specialty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bowhead Specialty Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Allstate and Bowhead Specialty

The main advantage of trading using opposite Allstate and Bowhead Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allstate 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 The Allstate 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.