Correlation Between Reservoir Media and Bowhead Specialty

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

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

Diversification Opportunities for Reservoir Media and Bowhead Specialty

0.85

Correlation Coefficient

Reservoir Media  Bowhead Specialty

Very poor diversification

The 3 months correlation between Reservoir and Bowhead is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Reservoir Media and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and Reservoir Media 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 Reservoir Media 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 Reservoir Media i.e., Reservoir Media and Bowhead Specialty go up and down completely randomly.

Pair Corralation between Reservoir Media and Bowhead Specialty

Given the investment horizon of 90 days Reservoir Media is expected to generate 3.16 times less return on investment than Bowhead Specialty. But when comparing it to its historical volatility, Reservoir Media is 1.03 times less risky than Bowhead Specialty. It trades about 0.04 of its potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,380  in Bowhead Specialty Holdings on September 29, 2024 and sell it today you would earn a total of  1,134  from holding Bowhead Specialty Holdings or generate 47.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	30.44%
Values	Daily Returns

Reservoir Media  vs.  Bowhead Specialty Holdings

Reservoir Media

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reservoir Media are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Reservoir Media reported solid returns over the last few months and may actually be approaching a breakup point.

Bowhead Specialty

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bowhead Specialty showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reservoir Media and Bowhead Specialty

The main advantage of trading using opposite Reservoir Media and Bowhead Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reservoir Media 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 Reservoir Media 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.