Correlation Between Ambac Financial and First American

Can any of the company-specific risk be diversified away by investing in both Ambac Financial 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 Ambac Financial and First American 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 First American, you can compare the effects of market volatilities on Ambac Financial 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 Ambac Financial with a short position of First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ambac Financial and First American.

Diversification Opportunities for Ambac Financial and First American

0.69

Correlation Coefficient

Ambac Financial  First American

Poor diversification

The 3 months correlation between Ambac and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ambac Financial Group and First American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American 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 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 Ambac Financial i.e., Ambac Financial and First American go up and down completely randomly.

Pair Corralation between Ambac Financial and First American

Given the investment horizon of 90 days Ambac Financial Group is expected to generate 1.75 times more return on investment than First American. However, Ambac Financial is 1.75 times more volatile than First American. It trades about 0.14 of its potential returns per unit of risk. First American is currently generating about 0.01 per unit of risk. If you would invest  1,103  in Ambac Financial Group on September 13, 2024 and sell it today you would earn a total of  206.00  from holding Ambac Financial Group or generate 18.68% return on investment over 90 days.

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

Ambac Financial Group  vs.  First American

Ambac Financial Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ambac Financial Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Ambac Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Ambac Financial and First American

The main advantage of trading using opposite Ambac Financial and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ambac Financial 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 Ambac Financial Group 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.