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

0.86

Correlation Coefficient

Allstate  Bowhead Specialty

Very poor diversification

The 3 months correlation between Allstate and Bowhead is 0.86. 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 Allstate is expected to generate 1.9 times less return on investment than Bowhead Specialty. But when comparing it to its historical volatility, The Allstate is 1.22 times less risky than Bowhead Specialty. It trades about 0.09 of its potential returns per unit of risk. 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	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

The Allstate  vs.  Bowhead Specialty Holdings

Allstate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Allstate may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..