Correlation Between AMERISAFE and Essent

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

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

Diversification Opportunities for AMERISAFE and Essent

-0.02

Correlation Coefficient

AMERISAFE  Essent

Good diversification

The 3 months correlation between AMERISAFE and Essent is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding AMERISAFE and Essent Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essent Group and AMERISAFE 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 AMERISAFE are associated (or correlated) with Essent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essent Group has no effect on the direction of AMERISAFE i.e., AMERISAFE and Essent go up and down completely randomly.

Pair Corralation between AMERISAFE and Essent

Given the investment horizon of 90 days AMERISAFE is expected to generate 1.87 times less return on investment than Essent. But when comparing it to its historical volatility, AMERISAFE is 1.14 times less risky than Essent. It trades about 0.05 of its potential returns per unit of risk. Essent Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,382  in Essent Group on December 30, 2024 and sell it today you would earn a total of  353.00  from holding Essent Group or generate 6.56% return on investment over 90 days.

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

AMERISAFE  vs.  Essent Group

AMERISAFE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AMERISAFE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AMERISAFE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Essent Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Essent Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Essent may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with AMERISAFE and Essent

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

The idea behind AMERISAFE and Essent 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.