Correlation Between W R and Bowhead Specialty

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

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

Diversification Opportunities for W R and Bowhead Specialty

-0.42

Correlation Coefficient

W R  Bowhead Specialty

Very good diversification

The 3 months correlation between WRB-PE and Bowhead is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding W R Berkley and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and W R 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 W R Berkley 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 W R i.e., W R and Bowhead Specialty go up and down completely randomly.

Pair Corralation between W R and Bowhead Specialty

Assuming the 90 days trading horizon W R Berkley is expected to under-perform the Bowhead Specialty. But the preferred stock apears to be less risky and, when comparing its historical volatility, W R Berkley is 3.92 times less risky than Bowhead Specialty. The preferred stock trades about -0.06 of its potential returns per unit of risk. The Bowhead Specialty Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,855  in Bowhead Specialty Holdings on September 19, 2024 and sell it today you would earn a total of  710.00  from holding Bowhead Specialty Holdings or generate 24.87% return on investment over 90 days.

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

W R Berkley  vs.  Bowhead Specialty Holdings

W R Berkley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days W R Berkley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, W R is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 W R and Bowhead Specialty

The main advantage of trading using opposite W R and Bowhead Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if W R 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 W R Berkley 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.