Correlation Between Ambac Financial and James River

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

Diversification Opportunities for Ambac Financial and James River

0.85

Correlation Coefficient

Ambac Financial  James River

Very poor diversification

The 3 months correlation between Ambac and James is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ambac Financial Group and James River Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on James River Group 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 James River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of James River Group has no effect on the direction of Ambac Financial i.e., Ambac Financial and James River go up and down completely randomly.

Pair Corralation between Ambac Financial and James River

Given the investment horizon of 90 days Ambac Financial Group is expected to under-perform the James River. But the stock apears to be less risky and, when comparing its historical volatility, Ambac Financial Group is 1.71 times less risky than James River. The stock trades about -0.2 of its potential returns per unit of risk. The James River Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  476.00  in James River Group on December 28, 2024 and sell it today you would lose (40.00) from holding James River Group or give up 8.4% of portfolio value over 90 days.

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

Ambac Financial Group  vs.  James River Group

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.

James River Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days James River Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, James River is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ambac Financial and James River

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

The idea behind Ambac Financial Group and James River Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.