Correlation Between Arch Capital and FAT Brands

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

Diversification Opportunities for Arch Capital and FAT Brands

-0.41

Correlation Coefficient

Arch Capital  FAT Brands

Very good diversification

The 3 months correlation between Arch and FAT is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands 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 FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Arch Capital i.e., Arch Capital and FAT Brands go up and down completely randomly.

Pair Corralation between Arch Capital and FAT Brands

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the FAT Brands. But the preferred stock apears to be less risky and, when comparing its historical volatility, Arch Capital Group is 1.65 times less risky than FAT Brands. The preferred stock trades about -0.4 of its potential returns per unit of risk. The FAT Brands is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  940.00  in FAT Brands on September 12, 2024 and sell it today you would earn a total of  25.00  from holding FAT Brands or generate 2.66% return on investment over 90 days.

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

Arch Capital Group  vs.  FAT Brands

Arch Capital Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Arch Capital is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

FAT Brands

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, FAT Brands is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Arch Capital and FAT Brands

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

The idea behind Arch Capital Group and FAT Brands 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.