Correlation Between Treasury Wine and Arch Capital

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

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

Diversification Opportunities for Treasury Wine and Arch Capital

0.5

Correlation Coefficient

Treasury Wine  Arch Capital

Very weak diversification

The 3 months correlation between Treasury and Arch is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates 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 Treasury Wine 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 Treasury Wine Estates 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 Treasury Wine i.e., Treasury Wine and Arch Capital go up and down completely randomly.

Pair Corralation between Treasury Wine and Arch Capital

Assuming the 90 days horizon Treasury Wine Estates is expected to under-perform the Arch Capital. But the stock apears to be less risky and, when comparing its historical volatility, Treasury Wine Estates is 1.17 times less risky than Arch Capital. The stock trades about -0.17 of its potential returns per unit of risk. The Arch Capital Group is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  8,695  in Arch Capital Group on October 23, 2024 and sell it today you would earn a total of  625.00  from holding Arch Capital Group or generate 7.19% return on investment over 90 days.

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

Treasury Wine Estates  vs.  Arch Capital Group

Treasury Wine Estates

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Treasury Wine Estates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

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 nearly stable basic indicators, Arch Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Treasury Wine and Arch Capital

The main advantage of trading using opposite Treasury Wine and Arch Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Treasury Wine 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 Treasury Wine Estates 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.