Correlation Between Bowhead Specialty and American Financial

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

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

Diversification Opportunities for Bowhead Specialty and American Financial

0.72

Correlation Coefficient

Bowhead Specialty  American Financial

Poor diversification

The 3 months correlation between Bowhead and American is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Bowhead Specialty Holdings and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and Bowhead Specialty 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 Bowhead Specialty Holdings are associated (or correlated) with American Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Financial has no effect on the direction of Bowhead Specialty i.e., Bowhead Specialty and American Financial go up and down completely randomly.

Pair Corralation between Bowhead Specialty and American Financial

Considering the 90-day investment horizon Bowhead Specialty Holdings is expected to generate 1.3 times more return on investment than American Financial. However, Bowhead Specialty is 1.3 times more volatile than American Financial Group. It trades about 0.06 of its potential returns per unit of risk. American Financial Group is currently generating about -0.25 per unit of risk. If you would invest  3,283  in Bowhead Specialty Holdings on December 1, 2024 and sell it today you would earn a total of  80.00  from holding Bowhead Specialty Holdings or generate 2.44% return on investment over 90 days.

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

Bowhead Specialty Holdings  vs.  American Financial Group

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.

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 latest inconsistent performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bowhead Specialty and American Financial

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

The idea behind Bowhead Specialty Holdings and American Financial Group 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.