Correlation Between Arch Capital and Enact Holdings

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

Diversification Opportunities for Arch Capital and Enact Holdings

0.06

Correlation Coefficient

Arch Capital  Enact Holdings

Significant diversification

The 3 months correlation between Arch and Enact is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Enact Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enact Holdings 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 Enact Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enact Holdings has no effect on the direction of Arch Capital i.e., Arch Capital and Enact Holdings go up and down completely randomly.

Pair Corralation between Arch Capital and Enact Holdings

Given the investment horizon of 90 days Arch Capital Group is expected to generate 1.22 times more return on investment than Enact Holdings. However, Arch Capital is 1.22 times more volatile than Enact Holdings. It trades about -0.17 of its potential returns per unit of risk. Enact Holdings is currently generating about -0.28 per unit of risk. If you would invest  9,150  in Arch Capital Group on May 2, 2025 and sell it today you would lose (544.00) from holding Arch Capital Group or give up 5.95% of portfolio value over 90 days.

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

Arch Capital Group  vs.  Enact Holdings

Arch Capital Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Enact Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enact Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Enact Holdings is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Arch Capital and Enact Holdings

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

The idea behind Arch Capital Group and Enact Holdings 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.