Correlation Between Bowhead Specialty and HCI

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

Diversification Opportunities for Bowhead Specialty and HCI

0.6

Correlation Coefficient

Bowhead Specialty  HCI

Poor diversification

The 3 months correlation between Bowhead and HCI is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bowhead Specialty Holdings and HCI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCI Group 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 HCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCI Group has no effect on the direction of Bowhead Specialty i.e., Bowhead Specialty and HCI go up and down completely randomly.

Pair Corralation between Bowhead Specialty and HCI

Considering the 90-day investment horizon Bowhead Specialty is expected to generate 1.14 times less return on investment than HCI. In addition to that, Bowhead Specialty is 1.04 times more volatile than HCI Group. It trades about 0.14 of its total potential returns per unit of risk. HCI Group is currently generating about 0.16 per unit of volatility. If you would invest  11,702  in HCI Group on December 27, 2024 and sell it today you would earn a total of  2,345  from holding HCI Group or generate 20.04% 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.  HCI Group

Bowhead Specialty

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 10 (%) 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.

HCI Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HCI Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, HCI demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bowhead Specialty and HCI

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

The idea behind Bowhead Specialty Holdings and HCI 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.