Correlation Between Dover and Bowhead Specialty

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

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

Diversification Opportunities for Dover and Bowhead Specialty

0.76

Correlation Coefficient

Dover  Bowhead Specialty

Poor diversification

The 3 months correlation between Dover and Bowhead is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dover and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and Dover 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 Dover 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 Dover i.e., Dover and Bowhead Specialty go up and down completely randomly.

Pair Corralation between Dover and Bowhead Specialty

Considering the 90-day investment horizon Dover is expected to under-perform the Bowhead Specialty. But the stock apears to be less risky and, when comparing its historical volatility, Dover is 1.96 times less risky than Bowhead Specialty. The stock trades about -0.36 of its potential returns per unit of risk. The Bowhead Specialty Holdings is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,625  in Bowhead Specialty Holdings on September 27, 2024 and sell it today you would lose (111.00) from holding Bowhead Specialty Holdings or give up 3.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Dover  vs.  Bowhead Specialty Holdings

Dover

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dover has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dover is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Bowhead Specialty

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 15 (%) 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 Dover and Bowhead Specialty

The main advantage of trading using opposite Dover and Bowhead Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dover 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 Dover 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.