Correlation Between Arch Capital and Fifth Third

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

Diversification Opportunities for Arch Capital and Fifth Third

0.44

Correlation Coefficient

Arch Capital  Fifth Third

Very weak diversification

The 3 months correlation between Arch and Fifth is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Fifth Third Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fifth Third Bancorp 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 Fifth Third. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fifth Third Bancorp has no effect on the direction of Arch Capital i.e., Arch Capital and Fifth Third go up and down completely randomly.

Pair Corralation between Arch Capital and Fifth Third

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the Fifth Third. In addition to that, Arch Capital is 1.24 times more volatile than Fifth Third Bancorp. It trades about -0.23 of its total potential returns per unit of risk. Fifth Third Bancorp is currently generating about -0.02 per unit of volatility. If you would invest  2,501  in Fifth Third Bancorp on August 31, 2024 and sell it today you would lose (8.00) from holding Fifth Third Bancorp or give up 0.32% of portfolio value over 90 days.

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

Arch Capital Group  vs.  Fifth Third Bancorp

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 current stock price disarray, may contribute to short-term losses for the investors.

Fifth Third Bancorp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Fifth Third is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Arch Capital and Fifth Third

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

The idea behind Arch Capital Group and Fifth Third Bancorp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.