Correlation Between Arch Capital and Brp

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

Diversification Opportunities for Arch Capital and Brp

0.74

Correlation Coefficient

Arch Capital  Brp

Poor diversification

The 3 months correlation between Arch and Brp is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Brp Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brp Group 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 Brp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brp Group has no effect on the direction of Arch Capital i.e., Arch Capital and Brp go up and down completely randomly.

Pair Corralation between Arch Capital and Brp

Given the investment horizon of 90 days Arch Capital Group is expected to generate 0.76 times more return on investment than Brp. However, Arch Capital Group is 1.31 times less risky than Brp. It trades about 0.1 of its potential returns per unit of risk. Brp Group is currently generating about -0.08 per unit of risk. If you would invest  9,059  in Arch Capital Group on January 26, 2024 and sell it today you would earn a total of  260.00  from holding Arch Capital Group or generate 2.87% return on investment over 90 days.

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

Arch Capital Group  vs.  Brp Group

Arch Capital Group

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Arch Capital disclosed solid returns over the last few months and may actually be approaching a breakup point.

Brp Group

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Arch Capital and Brp

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

The idea behind Arch Capital Group and Brp 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.