Correlation Between Essent and Ambac Financial
Can any of the company-specific risk be diversified away by investing in both Essent 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 Essent and Ambac Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Essent Group and Ambac Financial Group, you can compare the effects of market volatilities on Essent 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 Essent with a short position of Ambac Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essent and Ambac Financial.
Diversification Opportunities for Essent and Ambac Financial
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Essent and Ambac is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Essent Group 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 Essent 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 Essent Group 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 Essent i.e., Essent and Ambac Financial go up and down completely randomly.
Pair Corralation between Essent and Ambac Financial
Given the investment horizon of 90 days Essent Group is expected to generate 0.53 times more return on investment than Ambac Financial. However, Essent Group is 1.87 times less risky than Ambac Financial. It trades about 0.4 of its potential returns per unit of risk. Ambac Financial Group is currently generating about -0.15 per unit of risk. If you would invest 5,291 in Essent Group on October 20, 2024 and sell it today you would earn a total of 480.00 from holding Essent Group or generate 9.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Essent Group vs. Ambac Financial Group
Performance |
| Timeline |
| Essent Group |
| Ambac Financial Group |
Essent and Ambac Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Essent and Ambac Financial
The main advantage of trading using opposite Essent and Ambac Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essent 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 Essent Group 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.| Ambac Financial vs. Employers Holdings | Ambac Financial vs. James River Group | Ambac Financial vs. Assured Guaranty | Ambac Financial vs. ICC Holdings |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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