Correlation Between Essent and Assured Guaranty

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

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

Diversification Opportunities for Essent and Assured Guaranty

0.66

Correlation Coefficient

Essent  Assured Guaranty

Poor diversification

The 3 months correlation between Essent and Assured is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Essent Group and Assured Guaranty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Assured Guaranty and Essent 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 Essent 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 Essent i.e., Essent and Assured Guaranty go up and down completely randomly.

Pair Corralation between Essent and Assured Guaranty

Given the investment horizon of 90 days Essent Group is expected to generate 0.8 times more return on investment than Assured Guaranty. However, Essent Group is 1.24 times less risky than Assured Guaranty. It trades about 0.12 of its potential returns per unit of risk. Assured Guaranty is currently generating about 0.01 per unit of risk. If you would invest  5,382  in Essent Group on December 29, 2024 and sell it today you would earn a total of  469.00  from holding Essent Group or generate 8.71% return on investment over 90 days.

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

Essent Group  vs.  Assured Guaranty

Essent Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essent Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Essent may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Essent and Assured Guaranty

The main advantage of trading using opposite Essent and Assured Guaranty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essent 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 Essent 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.