Correlation Between Ambac Financial and Assured Guaranty

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

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

Diversification Opportunities for Ambac Financial and Assured Guaranty

0.75

Correlation Coefficient

Ambac Financial  Assured Guaranty

Poor diversification

The 3 months correlation between Ambac and Assured is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Ambac Financial Group and Assured Guaranty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Assured Guaranty and Ambac Financial 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 Ambac Financial Group 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 Ambac Financial i.e., Ambac Financial and Assured Guaranty go up and down completely randomly.

Pair Corralation between Ambac Financial and Assured Guaranty

Given the investment horizon of 90 days Ambac Financial Group is expected to under-perform the Assured Guaranty. In addition to that, Ambac Financial is 1.66 times more volatile than Assured Guaranty. It trades about -0.22 of its total potential returns per unit of risk. Assured Guaranty is currently generating about -0.01 per unit of volatility. If you would invest  8,902  in Assured Guaranty on December 28, 2024 and sell it today you would lose (179.00) from holding Assured Guaranty or give up 2.01% of portfolio value over 90 days.

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

Ambac Financial Group  vs.  Assured Guaranty

Ambac Financial Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ambac Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Ambac Financial and Assured Guaranty

The main advantage of trading using opposite Ambac Financial and Assured Guaranty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ambac Financial 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 Ambac Financial Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.