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

-0.59

Correlation Coefficient

Essent  Ambac Financial

Excellent diversification

The 3 months correlation between Essent and Ambac is -0.59. 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 under-perform the Ambac Financial. But the stock apears to be less risky and, when comparing its historical volatility, Essent Group is 1.24 times less risky than Ambac Financial. The stock trades about -0.15 of its potential returns per unit of risk. The Ambac Financial Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,150  in Ambac Financial Group on September 23, 2024 and sell it today you would earn a total of  67.00  from holding Ambac Financial Group or generate 5.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Essent Group  vs.  Ambac Financial Group

Essent Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essent Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ambac Financial Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ambac Financial Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Ambac Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.