Correlation Between United Fire and Arch Capital

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

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

Diversification Opportunities for United Fire and Arch Capital

-0.03

Correlation Coefficient

United Fire  Arch Capital

Good diversification

The 3 months correlation between United and Arch is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group 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 United Fire 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 United Fire Group 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 United Fire i.e., United Fire and Arch Capital go up and down completely randomly.

Pair Corralation between United Fire and Arch Capital

Given the investment horizon of 90 days United Fire Group is expected to under-perform the Arch Capital. In addition to that, United Fire is 1.61 times more volatile than Arch Capital Group. It trades about 0.0 of its total potential returns per unit of risk. Arch Capital Group is currently generating about 0.09 per unit of volatility. If you would invest  4,567  in Arch Capital Group on January 19, 2024 and sell it today you would earn a total of  4,572  from holding Arch Capital Group or generate 100.11% return on investment over 90 days.

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

United Fire Group  vs.  Arch Capital Group

United Fire Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, United Fire is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Arch Capital Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 12 (%) 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.

Pair Trading with United Fire and Arch Capital

The main advantage of trading using opposite United Fire and Arch Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Fire 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 United Fire Group 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.