ARCH CAPITAL GROUP LTD.

26.79 +0.39 (+1.44%) Sell

ACGL does a dead cat bounce, it's still too early to buy into it

13 min read

ARCH CAPITAL GROUP LTD. outperformed the broader market on Tuesday. It increased by +1.44% to close at 26.79. It is currently trading -13% below it's 52 week high of 31.14.

[Themes containing ACGL]

Buy-and-Hold investors in ACGL experienced a maximum drawdown of -13.43% over the last three months. It fell by -11.14% during this strong bearish trending period. There were both Long and Short signals during this period, where the short signals were significantly more profitable than the long signals. The net profit from Short signals was +8.6%.

Trend

ACGL has been outperforming the SP500 index in recent time. It showed significant underperformance (compared to the SP500 index) from 27 Apr, 2017 to 21 Jun, 2018. Over the last 2 years 11 months and 14 days, ACGL underperformed the SP500 index on 47% days. Which indicates that on days ACGL underperforms the SP500 index, it's performance is marginally worse than on the days it outperforms the SP500 index.

During the last three months ACGL was mostly loss making and delivered on average -0.18% per day. It's best return during this period (of +3.25%) was on Tuesday, 30 Oct, 2018. While it's worst loss in the same period (of -2.97%) was on Wednesday, 24 Oct, 2018. The longest stort-term trend during this period was 10 losing days, which started on 3 Dec, 2018 and ended on 17 Dec, 2018. This bearish trend lost -8.0% of investor capital.

During the last year ACGL had 5 profitable months and 7 loss making months. ACGL returned profits in fewer months than SP500 index. ACGL significantly outperformed SP500 index in Jul 2018, when it returned +14.76% compared to +4.75% returned by SP500 index during it's best month in the last one year - Jan 2018. ACGL had a longer winning streak of losing months than SP500 index. It went down in 4 straight months (from Feb 2018 to May 2018) during which period it delivered -14.02%. It is interesting to note that both ACGL and SP500 index significantly outperform during months when quarterly/annual results are announced.

"Derivatives are financial weapons of mass destruction.

ACGL is currently seeing overall fall in volatility. In comparison, the SP500 index is seeing increase in volatility. During the last three months, there was a significant surge in ACGL's volatility from 20 Sep, 2018 to 2 Nov, 2018. While there was a significant surge in the SP500 index's volatility from 19 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that ACGL has significant positive skewness in it's return distribution. This indicates that investors can expect ACGL to recover from drawdowns quickly. Which makes ACGL a good candidate for investing on short-term bullish trends or even counter-trends hoping for a pull-back.

SP500 index has more chance of extreme outcomes than ACGL. Therefore, SP500 must receive a lower allocation than ACGL in your portfolio. SP500 index usually has shorter drawdown period than ACGL.

Based on your interest in ACGL you may find it interesting to know that ~DIVFINSERVS has delivered similar performance as ACGL and can be considered as an alternative investment candidate (to ACGL).

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