Correlation Between Arch Capital and Australian Agricultural

Can any of the company-specific risk be diversified away by investing in both Arch Capital and Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural, you can compare the effects of market volatilities on Arch Capital and Australian Agricultural 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 Australian Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arch Capital and Australian Agricultural.

Diversification Opportunities for Arch Capital and Australian Agricultural

0.27

Correlation Coefficient

Arch Capital  Australian Agricultural

Modest diversification

The 3 months correlation between Arch and Australian is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural 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 Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of Arch Capital i.e., Arch Capital and Australian Agricultural go up and down completely randomly.

Pair Corralation between Arch Capital and Australian Agricultural

Given the investment horizon of 90 days Arch Capital Group is expected to generate 0.6 times more return on investment than Australian Agricultural. However, Arch Capital Group is 1.67 times less risky than Australian Agricultural. It trades about 0.1 of its potential returns per unit of risk. Australian Agricultural is currently generating about 0.05 per unit of risk. If you would invest  9,188  in Arch Capital Group on March 15, 2024 and sell it today you would earn a total of  728.00  from holding Arch Capital Group or generate 7.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Arch Capital Group  vs.  Australian Agricultural

Arch Capital Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Arch Capital may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Australian Agricultural

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Australian Agricultural may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Arch Capital and Australian Agricultural

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

The idea behind Arch Capital Group and Australian Agricultural 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .