Correlation Between Radian and Enact Holdings
Can any of the company-specific risk be diversified away by investing in both Radian and Enact Holdings 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 Radian and Enact Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Radian Group and Enact Holdings, you can compare the effects of market volatilities on Radian and Enact Holdings 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 Radian with a short position of Enact Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Radian and Enact Holdings.
Diversification Opportunities for Radian and Enact Holdings
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Radian and Enact is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Radian Group and Enact Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enact Holdings and Radian 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 Radian Group are associated (or correlated) with Enact Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enact Holdings has no effect on the direction of Radian i.e., Radian and Enact Holdings go up and down completely randomly.
Pair Corralation between Radian and Enact Holdings
Considering the 90-day investment horizon Radian Group is expected to generate 1.67 times more return on investment than Enact Holdings. However, Radian is 1.67 times more volatile than Enact Holdings. It trades about 0.08 of its potential returns per unit of risk. Enact Holdings is currently generating about 0.09 per unit of risk. If you would invest 3,411 in Radian Group on August 28, 2024 and sell it today you would earn a total of 136.00 from holding Radian Group or generate 3.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Radian Group vs. Enact Holdings
Performance |
| Timeline |
| Radian Group |
| Enact Holdings |
Radian and Enact Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Radian and Enact Holdings
The main advantage of trading using opposite Radian and Enact Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Radian position performs unexpectedly, Enact Holdings 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 Enact Holdings will offset losses from the drop in Enact Holdings' long position.The idea behind Radian Group and Enact Holdings 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.| Enact Holdings vs. Assured Guaranty | Enact Holdings vs. AMERISAFE | Enact Holdings vs. MBIA Inc | Enact Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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