Correlation Between Arch Capital and Allstate

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

Diversification Opportunities for Arch Capital and Allstate

0.88

Correlation Coefficient

Arch Capital  Allstate

Very poor diversification

The 3 months correlation between Arch and Allstate is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and The Allstate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allstate 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 Allstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allstate has no effect on the direction of Arch Capital i.e., Arch Capital and Allstate go up and down completely randomly.

Pair Corralation between Arch Capital and Allstate

Assuming the 90 days horizon Arch Capital is expected to generate 1.34 times less return on investment than Allstate. But when comparing it to its historical volatility, Arch Capital Group is 1.06 times less risky than Allstate. It trades about 0.07 of its potential returns per unit of risk. The Allstate is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,896  in The Allstate on May 2, 2025 and sell it today you would earn a total of  56.00  from holding The Allstate or generate 2.95% return on investment over 90 days.

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

Arch Capital Group  vs.  The Allstate

Arch Capital Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Arch Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Allstate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Allstate is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Arch Capital and Allstate

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

The idea behind Arch Capital Group and The Allstate 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.