Correlation Between Universal Insurance and Ambac Financial
Can any of the company-specific risk be diversified away by investing in both Universal Insurance and Ambac Financial 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 Universal Insurance and Ambac Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal Insurance Holdings and Ambac Financial Group, you can compare the effects of market volatilities on Universal Insurance and Ambac Financial 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 Universal Insurance with a short position of Ambac Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Ambac Financial.
Diversification Opportunities for Universal Insurance and Ambac Financial
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Universal and Ambac is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Ambac Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambac Financial Group and Universal Insurance 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 Universal Insurance Holdings are associated (or correlated) with Ambac Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambac Financial Group has no effect on the direction of Universal Insurance i.e., Universal Insurance and Ambac Financial go up and down completely randomly.
Pair Corralation between Universal Insurance and Ambac Financial
Assuming the 90 days horizon Universal Insurance Holdings is expected to under-perform the Ambac Financial. But the stock apears to be less risky and, when comparing its historical volatility, Universal Insurance Holdings is 1.99 times less risky than Ambac Financial. The stock trades about -0.1 of its potential returns per unit of risk. The Ambac Financial Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,060 in Ambac Financial Group on October 11, 2024 and sell it today you would earn a total of 80.00 from holding Ambac Financial Group or generate 7.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal Insurance Holdings vs. Ambac Financial Group
Performance |
| Timeline |
| Universal Insurance |
| Ambac Financial Group |
Universal Insurance and Ambac Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Insurance and Ambac Financial
The main advantage of trading using opposite Universal Insurance and Ambac Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Insurance position performs unexpectedly, Ambac Financial 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 Ambac Financial will offset losses from the drop in Ambac Financial's long position.The idea behind Universal Insurance Holdings and Ambac Financial 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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Check out your portfolio center.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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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