Correlation Between First Citizens and Arch Capital

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

By analyzing existing cross correlation between First Citizens BancShares and Arch Capital Group, you can compare the effects of market volatilities on First Citizens and Arch Capital 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 First Citizens with a short position of Arch Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Citizens and Arch Capital.

Diversification Opportunities for First Citizens and Arch Capital

-0.02

Correlation Coefficient

First Citizens  Arch Capital

Good diversification

The 3 months correlation between First and Arch is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Citizens BancShares and Arch Capital Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Capital Group and First Citizens 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 First Citizens BancShares are associated (or correlated) with Arch Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Capital Group has no effect on the direction of First Citizens i.e., First Citizens and Arch Capital go up and down completely randomly.

Pair Corralation between First Citizens and Arch Capital

Assuming the 90 days horizon First Citizens BancShares is expected to generate 1.4 times more return on investment than Arch Capital. However, First Citizens is 1.4 times more volatile than Arch Capital Group. It trades about 0.07 of its potential returns per unit of risk. Arch Capital Group is currently generating about 0.0 per unit of risk. If you would invest  2,190  in First Citizens BancShares on December 25, 2024 and sell it today you would earn a total of  118.00  from holding First Citizens BancShares or generate 5.39% return on investment over 90 days.

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

First Citizens BancShares  vs.  Arch Capital Group

First Citizens BancShares

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Citizens BancShares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, First Citizens is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Arch Capital Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Arch Capital is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Citizens and Arch Capital

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

The idea behind First Citizens BancShares and Arch Capital 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.