Correlation Between Arch Capital and Columbia Sportswear

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

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

Diversification Opportunities for Arch Capital and Columbia Sportswear

-0.33

Correlation Coefficient

Arch Capital  Columbia Sportswear

Very good diversification

The 3 months correlation between Arch and Columbia is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear and Arch Capital 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 Arch Capital Group are associated (or correlated) with Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of Arch Capital i.e., Arch Capital and Columbia Sportswear go up and down completely randomly.

Pair Corralation between Arch Capital and Columbia Sportswear

Assuming the 90 days horizon Arch Capital is expected to generate 1.11 times less return on investment than Columbia Sportswear. But when comparing it to its historical volatility, Arch Capital Group is 1.04 times less risky than Columbia Sportswear. It trades about 0.05 of its potential returns per unit of risk. Columbia Sportswear is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,468  in Columbia Sportswear on October 5, 2024 and sell it today you would earn a total of  1,582  from holding Columbia Sportswear or generate 24.46% return on investment over 90 days.

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

Arch Capital Group  vs.  Columbia Sportswear

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 uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Columbia Sportswear

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Columbia Sportswear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Columbia Sportswear may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Arch Capital and Columbia Sportswear

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

The idea behind Arch Capital Group and Columbia Sportswear 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.