Correlation Between Essent and Hippo Holdings

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

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

Diversification Opportunities for Essent and Hippo Holdings

-0.79

Correlation Coefficient

Essent  Hippo Holdings

Pay attention - limited upside

The 3 months correlation between Essent and Hippo is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Essent Group and Hippo Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hippo Holdings 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 Hippo Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hippo Holdings has no effect on the direction of Essent i.e., Essent and Hippo Holdings go up and down completely randomly.

Pair Corralation between Essent and Hippo Holdings

Given the investment horizon of 90 days Essent Group is expected to under-perform the Hippo Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Essent Group is 2.55 times less risky than Hippo Holdings. The stock trades about -0.07 of its potential returns per unit of risk. The Hippo Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,857  in Hippo Holdings on September 2, 2024 and sell it today you would earn a total of  1,447  from holding Hippo Holdings or generate 77.92% return on investment over 90 days.

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

Essent Group  vs.  Hippo Holdings

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 latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Hippo Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hippo Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Hippo Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Essent and Hippo Holdings

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

The idea behind Essent Group and Hippo 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.