Correlation Between Bowhead Specialty and Universal Insurance

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

Diversification Opportunities for Bowhead Specialty and Universal Insurance

0.75

Correlation Coefficient

Bowhead Specialty  Universal Insurance

Poor diversification

The 3 months correlation between Bowhead and Universal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bowhead Specialty Holdings and Universal Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Insurance 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 Universal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Insurance has no effect on the direction of Bowhead Specialty i.e., Bowhead Specialty and Universal Insurance go up and down completely randomly.

Pair Corralation between Bowhead Specialty and Universal Insurance

Considering the 90-day investment horizon Bowhead Specialty Holdings is expected to generate 1.14 times more return on investment than Universal Insurance. However, Bowhead Specialty is 1.14 times more volatile than Universal Insurance Holdings. It trades about -0.13 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about -0.21 per unit of risk. If you would invest  3,436  in Bowhead Specialty Holdings on October 24, 2024 and sell it today you would lose (156.00) from holding Bowhead Specialty Holdings or give up 4.54% of portfolio value over 90 days.

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

Bowhead Specialty Holdings  vs.  Universal Insurance Holdings

Bowhead Specialty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Bowhead Specialty may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Universal Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Universal Insurance is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bowhead Specialty and Universal Insurance

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

The idea behind Bowhead Specialty Holdings and Universal Insurance 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.