Correlation Between Enact Holdings and Assured Guaranty

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

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

Diversification Opportunities for Enact Holdings and Assured Guaranty

0.1

Correlation Coefficient

Enact Holdings  Assured Guaranty

Average diversification

The 3 months correlation between Enact and Assured is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Enact Holdings and Assured Guaranty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Assured Guaranty and Enact Holdings 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 Enact Holdings are associated (or correlated) with Assured Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Assured Guaranty has no effect on the direction of Enact Holdings i.e., Enact Holdings and Assured Guaranty go up and down completely randomly.

Pair Corralation between Enact Holdings and Assured Guaranty

Considering the 90-day investment horizon Enact Holdings is expected to generate 0.68 times more return on investment than Assured Guaranty. However, Enact Holdings is 1.47 times less risky than Assured Guaranty. It trades about 0.14 of its potential returns per unit of risk. Assured Guaranty is currently generating about 0.01 per unit of risk. If you would invest  3,221  in Enact Holdings on December 28, 2024 and sell it today you would earn a total of  282.00  from holding Enact Holdings or generate 8.76% return on investment over 90 days.

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

Enact Holdings  vs.  Assured Guaranty

Enact Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enact Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, Enact Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Assured Guaranty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Assured Guaranty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Assured Guaranty is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Enact Holdings and Assured Guaranty

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

The idea behind Enact Holdings and Assured Guaranty 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.