Correlation Between James River and Essent
Can any of the company-specific risk be diversified away by investing in both James River and Essent 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 James River and Essent into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between James River Group and Essent Group, you can compare the effects of market volatilities on James River and Essent 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 James River with a short position of Essent. Check out your portfolio center. Please also check ongoing floating volatility patterns of James River and Essent.
Diversification Opportunities for James River and Essent
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between James and Essent is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding James River Group and Essent Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essent Group and James River 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 James River Group are associated (or correlated) with Essent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essent Group has no effect on the direction of James River i.e., James River and Essent go up and down completely randomly.
Pair Corralation between James River and Essent
Given the investment horizon of 90 days James River Group is expected to under-perform the Essent. In addition to that, James River is 2.22 times more volatile than Essent Group. It trades about -0.08 of its total potential returns per unit of risk. Essent Group is currently generating about 0.04 per unit of volatility. If you would invest 5,459 in Essent Group on August 27, 2024 and sell it today you would earn a total of 353.00 from holding Essent Group or generate 6.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
James River Group vs. Essent Group
Performance |
| Timeline |
| James River Group |
| Essent Group |
James River and Essent Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with James River and Essent
The main advantage of trading using opposite James River and Essent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if James River position performs unexpectedly, Essent 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 Essent will offset losses from the drop in Essent's long position.| James River vs. Employers Holdings | James River vs. Investors Title | James River vs. AMERISAFE | James River vs. Essent Group |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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