Correlation Between TRAVEL + and Arch Capital

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

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and Arch Capital Group, you can compare the effects of market volatilities on TRAVEL + 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 TRAVEL + with a short position of Arch Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL + and Arch Capital.

Diversification Opportunities for TRAVEL + and Arch Capital

-0.13

Correlation Coefficient

TRAVEL +  Arch Capital

Good diversification

The 3 months correlation between TRAVEL and Arch is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 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 TRAVEL + 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 TRAVEL LEISURE DL 01 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 TRAVEL + i.e., TRAVEL + and Arch Capital go up and down completely randomly.

Pair Corralation between TRAVEL + and Arch Capital

Assuming the 90 days trading horizon TRAVEL LEISURE DL 01 is expected to generate 0.69 times more return on investment than Arch Capital. However, TRAVEL LEISURE DL 01 is 1.45 times less risky than Arch Capital. It trades about -0.26 of its potential returns per unit of risk. Arch Capital Group is currently generating about -0.19 per unit of risk. If you would invest  5,149  in TRAVEL LEISURE DL 01 on October 6, 2024 and sell it today you would lose (269.00) from holding TRAVEL LEISURE DL 01 or give up 5.22% of portfolio value over 90 days.

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

TRAVEL LEISURE DL 01  vs.  Arch Capital Group

TRAVEL LEISURE DL

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAVEL LEISURE DL 01 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAVEL + reported solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with TRAVEL + and Arch Capital

The main advantage of trading using opposite TRAVEL + and Arch Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRAVEL + 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 TRAVEL LEISURE DL 01 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.