Correlation Between Assured Guaranty and Kaiser Aluminum

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

By analyzing existing cross correlation between Assured Guaranty and Kaiser Aluminum, you can compare the effects of market volatilities on Assured Guaranty and Kaiser Aluminum 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 Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Assured Guaranty and Kaiser Aluminum.

Diversification Opportunities for Assured Guaranty and Kaiser Aluminum

0.74

Correlation Coefficient

Assured Guaranty  Kaiser Aluminum

Poor diversification

The 3 months correlation between Assured and Kaiser is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Assured Guaranty and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Assured Guaranty i.e., Assured Guaranty and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Assured Guaranty and Kaiser Aluminum

Assuming the 90 days horizon Assured Guaranty is expected to generate 1.59 times more return on investment than Kaiser Aluminum. However, Assured Guaranty is 1.59 times more volatile than Kaiser Aluminum. It trades about 0.02 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.04 per unit of risk. If you would invest  8,168  in Assured Guaranty on December 29, 2024 and sell it today you would earn a total of  32.00  from holding Assured Guaranty or generate 0.39% return on investment over 90 days.

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

Assured Guaranty  vs.  Kaiser Aluminum

Assured Guaranty

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Assured Guaranty are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Assured Guaranty is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Kaiser Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Kaiser Aluminum is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Assured Guaranty and Kaiser Aluminum

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

The idea behind Assured Guaranty and Kaiser Aluminum 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 CEOs Directory module to screen CEOs from public companies around the world.