Correlation Between Assured Guaranty and Ribbon Communications

Can any of the company-specific risk be diversified away by investing in both Assured Guaranty and Ribbon Communications 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 Assured Guaranty and Ribbon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Assured Guaranty and Ribbon Communications, you can compare the effects of market volatilities on Assured Guaranty and Ribbon Communications 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 Assured Guaranty with a short position of Ribbon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Assured Guaranty and Ribbon Communications.

Diversification Opportunities for Assured Guaranty and Ribbon Communications

0.85

Correlation Coefficient

Assured Guaranty  Ribbon Communications

Very poor diversification

The 3 months correlation between Assured and Ribbon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Assured Guaranty and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications and Assured Guaranty 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 Assured Guaranty are associated (or correlated) with Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Assured Guaranty i.e., Assured Guaranty and Ribbon Communications go up and down completely randomly.

Pair Corralation between Assured Guaranty and Ribbon Communications

Assuming the 90 days horizon Assured Guaranty is expected to generate 1.88 times less return on investment than Ribbon Communications. In addition to that, Assured Guaranty is 1.15 times more volatile than Ribbon Communications. It trades about 0.11 of its total potential returns per unit of risk. Ribbon Communications is currently generating about 0.23 per unit of volatility. If you would invest  268.00  in Ribbon Communications on September 23, 2024 and sell it today you would earn a total of  126.00  from holding Ribbon Communications or generate 47.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Assured Guaranty  vs.  Ribbon Communications

Assured Guaranty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Assured Guaranty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Assured Guaranty reported solid returns over the last few months and may actually be approaching a breakup point.

Ribbon Communications

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Assured Guaranty and Ribbon Communications

The main advantage of trading using opposite Assured Guaranty and Ribbon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Assured Guaranty position performs unexpectedly, Ribbon Communications 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 Ribbon Communications will offset losses from the drop in Ribbon Communications' long position.

The idea behind Assured Guaranty and Ribbon Communications 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.