Correlation Between Federal Agricultural and Arch Capital

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

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

Diversification Opportunities for Federal Agricultural and Arch Capital

0.2

Correlation Coefficient

Federal Agricultural  Arch Capital

Modest diversification

The 3 months correlation between Federal and Arch is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage 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 Federal Agricultural 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 Federal Agricultural Mortgage 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 Federal Agricultural i.e., Federal Agricultural and Arch Capital go up and down completely randomly.

Pair Corralation between Federal Agricultural and Arch Capital

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to under-perform the Arch Capital. In addition to that, Federal Agricultural is 4.25 times more volatile than Arch Capital Group. It trades about 0.0 of its total potential returns per unit of risk. Arch Capital Group is currently generating about 0.1 per unit of volatility. If you would invest  2,013  in Arch Capital Group on May 5, 2025 and sell it today you would earn a total of  67.00  from holding Arch Capital Group or generate 3.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	77.78%
Values	Daily Returns

Federal Agricultural Mortgage  vs.  Arch Capital Group

Federal Agricultural

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Federal Agricultural is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Arch Capital Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Capital Group are ranked lower than 8 (%) 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.

Pair Trading with Federal Agricultural and Arch Capital

The main advantage of trading using opposite Federal Agricultural and Arch Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural 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 Federal Agricultural Mortgage 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.