Correlation Between MBIA and Ambac Financial
Can any of the company-specific risk be diversified away by investing in both MBIA 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 MBIA and Ambac Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MBIA Inc and Ambac Financial Group, you can compare the effects of market volatilities on MBIA 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 MBIA with a short position of Ambac Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of MBIA and Ambac Financial.
Diversification Opportunities for MBIA and Ambac Financial
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between MBIA and Ambac is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding MBIA Inc 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 MBIA 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 MBIA Inc 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 MBIA i.e., MBIA and Ambac Financial go up and down completely randomly.
Pair Corralation between MBIA and Ambac Financial
Considering the 90-day investment horizon MBIA Inc is expected to generate 1.9 times more return on investment than Ambac Financial. However, MBIA is 1.9 times more volatile than Ambac Financial Group. It trades about 0.56 of its potential returns per unit of risk. Ambac Financial Group is currently generating about 0.16 per unit of risk. If you would invest 378.00 in MBIA Inc on August 27, 2024 and sell it today you would earn a total of 325.00 from holding MBIA Inc or generate 85.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
MBIA Inc vs. Ambac Financial Group
Performance |
| Timeline |
| MBIA Inc |
| Ambac Financial Group |
MBIA and Ambac Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MBIA and Ambac Financial
The main advantage of trading using opposite MBIA and Ambac Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MBIA 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 MBIA Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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