Correlation Between Assured Guaranty and First American

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

By analyzing existing cross correlation between Assured Guaranty and First American Financial, you can compare the effects of market volatilities on Assured Guaranty and First American 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 First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Assured Guaranty and First American.

Diversification Opportunities for Assured Guaranty and First American

0.8

Correlation Coefficient

Assured Guaranty  First American

Very poor diversification

The 3 months correlation between Assured and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Assured Guaranty and First American Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Financial 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 First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Financial has no effect on the direction of Assured Guaranty i.e., Assured Guaranty and First American go up and down completely randomly.

Pair Corralation between Assured Guaranty and First American

Assuming the 90 days horizon Assured Guaranty is expected to generate 2.2 times more return on investment than First American. However, Assured Guaranty is 2.2 times more volatile than First American Financial. It trades about 0.11 of its potential returns per unit of risk. First American Financial is currently generating about 0.03 per unit of risk. If you would invest  6,925  in Assured Guaranty on September 22, 2024 and sell it today you would earn a total of  1,425  from holding Assured Guaranty or generate 20.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.48%
Values	Daily Returns

Assured Guaranty  vs.  First American Financial

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.

First American Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First American Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Assured Guaranty and First American

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

The idea behind Assured Guaranty and First American Financial 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.