Correlation Between Assured Guaranty and Lancashire Holdings

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Can any of the company-specific risk be diversified away by investing in both Assured Guaranty and Lancashire 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 Assured Guaranty and Lancashire Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Assured Guaranty and Lancashire Holdings, you can compare the effects of market volatilities on Assured Guaranty and Lancashire 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 Assured Guaranty with a short position of Lancashire Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Assured Guaranty and Lancashire Holdings.

Diversification Opportunities for Assured Guaranty and Lancashire Holdings

AssuredLancashireDiversified AwayAssuredLancashireDiversified Away100%
-0.61
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Assured and Lancashire is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Assured Guaranty and Lancashire Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings 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 Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of Assured Guaranty i.e., Assured Guaranty and Lancashire Holdings go up and down completely randomly.

Pair Corralation between Assured Guaranty and Lancashire Holdings

Considering the 90-day investment horizon Assured Guaranty is expected to generate 0.48 times more return on investment than Lancashire Holdings. However, Assured Guaranty is 2.07 times less risky than Lancashire Holdings. It trades about 0.12 of its potential returns per unit of risk. Lancashire Holdings is currently generating about 0.01 per unit of risk. If you would invest  8,028  in Assured Guaranty on October 5, 2024 and sell it today you would earn a total of  1,001  from holding Assured Guaranty or generate 12.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy96.77%
ValuesDaily Returns

Assured Guaranty  vs.  Lancashire Holdings

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -15-10-505
JavaScript chart by amCharts 3.21.15AGO LCSHF
       Timeline  
Assured Guaranty 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Assured Guaranty are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Assured Guaranty displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan8284868890929496
Lancashire Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lancashire Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Lancashire Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan7.588.5

Assured Guaranty and Lancashire Holdings Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.14-3.85-2.56-1.270.021.352.724.085.45 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15AGO LCSHF
       Returns  

Pair Trading with Assured Guaranty and Lancashire Holdings

The main advantage of trading using opposite Assured Guaranty and Lancashire Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Assured Guaranty position performs unexpectedly, Lancashire 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 Lancashire Holdings will offset losses from the drop in Lancashire Holdings' long position.
The idea behind Assured Guaranty and Lancashire 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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