Correlation Between HCI and Bowhead Specialty

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

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

Diversification Opportunities for HCI and Bowhead Specialty

0.6

Correlation Coefficient

HCI  Bowhead Specialty

Poor diversification

The 3 months correlation between HCI and Bowhead is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding HCI Group and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and HCI 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 HCI Group 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 HCI i.e., HCI and Bowhead Specialty go up and down completely randomly.

Pair Corralation between HCI and Bowhead Specialty

Considering the 90-day investment horizon HCI Group is expected to generate 0.96 times more return on investment than Bowhead Specialty. However, HCI Group is 1.04 times less risky than Bowhead Specialty. It trades about 0.16 of its potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about 0.14 per unit of risk. 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

HCI Group  vs.  Bowhead Specialty Holdings

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.

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.

Pair Trading with HCI and Bowhead Specialty

The main advantage of trading using opposite HCI and Bowhead Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HCI 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 HCI Group 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.