Correlation Between NN Group and Arch Capital

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

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

Diversification Opportunities for NN Group and Arch Capital

0.44

Correlation Coefficient

NN Group  Arch Capital

Very weak diversification

The 3 months correlation between NNGRY and Arch is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding NN Group NV 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 NN Group 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 NN Group NV 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 NN Group i.e., NN Group and Arch Capital go up and down completely randomly.

Pair Corralation between NN Group and Arch Capital

Assuming the 90 days horizon NN Group NV is expected to generate 0.54 times more return on investment than Arch Capital. However, NN Group NV is 1.84 times less risky than Arch Capital. It trades about -0.14 of its potential returns per unit of risk. Arch Capital Group is currently generating about -0.1 per unit of risk. If you would invest  2,464  in NN Group NV on September 13, 2024 and sell it today you would lose (218.00) from holding NN Group NV or give up 8.85% of portfolio value over 90 days.

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

NN Group NV  vs.  Arch Capital Group

NN Group NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NN Group NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Arch Capital Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with NN Group and Arch Capital

The main advantage of trading using opposite NN Group and Arch Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NN Group 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 NN Group NV 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.