Correlation Between Essent and James River

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

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

Diversification Opportunities for Essent and James River

0.65

Correlation Coefficient

Essent  James River

Poor diversification

The 3 months correlation between Essent and James is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Essent 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 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 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 Essent i.e., Essent and James River go up and down completely randomly.

Pair Corralation between Essent and James River

Given the investment horizon of 90 days Essent Group is expected to generate 0.45 times more return on investment than James River. However, Essent Group is 2.23 times less risky than James River. It trades about -0.07 of its potential returns per unit of risk. James River Group is currently generating about -0.13 per unit of risk. If you would invest  6,349  in Essent Group on September 2, 2024 and sell it today you would lose (571.00) from holding Essent Group or give up 8.99% of portfolio value over 90 days.

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

Essent Group  vs.  James River Group

Essent Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essent Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

James River Group

Risk-Adjusted Performance

0 of 100

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 fragile performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Essent and James River

The main advantage of trading using opposite Essent and James River positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essent 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 Essent 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.