Correlation Between Arch Capital and IShares MSCI

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

Diversification Opportunities for Arch Capital and IShares MSCI

0.84

Correlation Coefficient

Arch Capital  IShares MSCI

Very poor diversification

The 3 months correlation between Arch and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and iShares MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Emerging 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Emerging has no effect on the direction of Arch Capital i.e., Arch Capital and IShares MSCI go up and down completely randomly.

Pair Corralation between Arch Capital and IShares MSCI

Given the investment horizon of 90 days Arch Capital Group is expected to generate 1.58 times more return on investment than IShares MSCI. However, Arch Capital is 1.58 times more volatile than iShares MSCI Emerging. It trades about 0.06 of its potential returns per unit of risk. iShares MSCI Emerging is currently generating about 0.03 per unit of risk. If you would invest  7,590  in Arch Capital Group on January 26, 2024 and sell it today you would earn a total of  1,729  from holding Arch Capital Group or generate 22.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

Arch Capital Group  vs.  iShares MSCI Emerging

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.

iShares MSCI Emerging

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Emerging are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Arch Capital and IShares MSCI

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

The idea behind Arch Capital Group and iShares MSCI Emerging 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.