Correlation Between First American and Ambac Financial

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

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

Diversification Opportunities for First American and Ambac Financial

0.68

Correlation Coefficient

First American  Ambac Financial

Poor diversification

The 3 months correlation between First and Ambac is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding First American and Ambac Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambac Financial Group and First American 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 First American are associated (or correlated) with Ambac Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambac Financial Group has no effect on the direction of First American i.e., First American and Ambac Financial go up and down completely randomly.

Pair Corralation between First American and Ambac Financial

Considering the 90-day investment horizon First American is expected to generate 4.13 times less return on investment than Ambac Financial. But when comparing it to its historical volatility, First American is 2.4 times less risky than Ambac Financial. It trades about 0.12 of its potential returns per unit of risk. Ambac Financial Group is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,170  in Ambac Financial Group on September 13, 2024 and sell it today you would earn a total of  152.00  from holding Ambac Financial Group or generate 12.99% return on investment over 90 days.

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

First American  vs.  Ambac Financial Group

First American

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ambac Financial Group

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ambac Financial Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Ambac Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First American and Ambac Financial

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

The idea behind First American and Ambac Financial 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.