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, 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

0.52

Correlation Coefficient

Assured Guaranty  First American

Very weak diversification

The 3 months correlation between Assured and First is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Assured Guaranty and First American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American 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 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

Considering the 90-day investment horizon Assured Guaranty is expected to generate 1.12 times more return on investment than First American. However, Assured Guaranty is 1.12 times more volatile than First American. It trades about 0.03 of its potential returns per unit of risk. First American is currently generating about 0.04 per unit of risk. If you would invest  8,195  in Assured Guaranty on October 2, 2024 and sell it today you would earn a total of  801.00  from holding Assured Guaranty or generate 9.77% return on investment over 90 days.

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

Assured Guaranty  vs.  First American

Assured Guaranty

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Assured Guaranty are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Assured Guaranty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First American

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First American has generated negative risk-adjusted returns adding no value to investors with long positions. 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 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.