Correlation Between Arch Capital and Heating Oil

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

Diversification Opportunities for Arch Capital and Heating Oil

-0.77

Correlation Coefficient

Arch Capital  Heating Oil

Pay attention - limited upside

The 3 months correlation between Arch and Heating is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Heating Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heating Oil 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 Heating Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heating Oil has no effect on the direction of Arch Capital i.e., Arch Capital and Heating Oil go up and down completely randomly.

Pair Corralation between Arch Capital and Heating Oil

Given the investment horizon of 90 days Arch Capital Group is expected to generate 1.27 times more return on investment than Heating Oil. However, Arch Capital is 1.27 times more volatile than Heating Oil. It trades about 0.47 of its potential returns per unit of risk. Heating Oil is currently generating about -0.24 per unit of risk. If you would invest  9,090  in Arch Capital Group on February 26, 2024 and sell it today you would earn a total of  1,246  from holding Arch Capital Group or generate 13.71% return on investment over 90 days.

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

Arch Capital Group  vs.  Heating Oil

Arch Capital Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Arch Capital disclosed solid returns over the last few months and may actually be approaching a breakup point.

Heating Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heating Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Commodity's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Heating Oil shareholders.

Pair Trading with Arch Capital and Heating Oil

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

The idea behind Arch Capital Group and Heating Oil 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..