Correlation Between Enstar Group and Arch Capital

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

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

Diversification Opportunities for Enstar Group and Arch Capital

-0.49

Correlation Coefficient

Enstar Group  Arch Capital

Very good diversification

The 3 months correlation between Enstar and Arch is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Enstar Group Limited 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 Enstar Group 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 Enstar Group Limited 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 Enstar Group i.e., Enstar Group and Arch Capital go up and down completely randomly.

Pair Corralation between Enstar Group and Arch Capital

Given the investment horizon of 90 days Enstar Group Limited is expected to generate 1.24 times more return on investment than Arch Capital. However, Enstar Group is 1.24 times more volatile than Arch Capital Group. It trades about 0.06 of its potential returns per unit of risk. Arch Capital Group is currently generating about 0.03 per unit of risk. If you would invest  22,768  in Enstar Group Limited on September 12, 2024 and sell it today you would earn a total of  9,890  from holding Enstar Group Limited or generate 43.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Enstar Group Limited  vs.  Arch Capital Group

Enstar Group Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Enstar Group Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Enstar Group is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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.

Pair Trading with Enstar Group and Arch Capital

The main advantage of trading using opposite Enstar Group and Arch Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enstar Group 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 Enstar Group Limited 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.