Correlation Between Fundamental Global and Arch Capital

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

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

Diversification Opportunities for Fundamental Global and Arch Capital

0.64

Correlation Coefficient

Fundamental Global  Arch Capital

Poor diversification

The 3 months correlation between Fundamental and Arch is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Global 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 Fundamental Global 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 Fundamental Global 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 Fundamental Global i.e., Fundamental Global and Arch Capital go up and down completely randomly.

Pair Corralation between Fundamental Global and Arch Capital

Considering the 90-day investment horizon Fundamental Global is expected to generate 5.75 times more return on investment than Arch Capital. However, Fundamental Global is 5.75 times more volatile than Arch Capital Group. It trades about 0.01 of its potential returns per unit of risk. Arch Capital Group is currently generating about -0.03 per unit of risk. If you would invest  1,956  in Fundamental Global on December 30, 2024 and sell it today you would lose (113.00) from holding Fundamental Global or give up 5.78% of portfolio value over 90 days.

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

Fundamental Global  vs.  Arch Capital Group

Fundamental Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fundamental Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Fundamental Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Fundamental Global and Arch Capital

The main advantage of trading using opposite Fundamental Global and Arch Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Global 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 Fundamental Global 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.