Correlation Between First American and Essent

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

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

Diversification Opportunities for First American and Essent

0.19

Correlation Coefficient

First American  Essent

Average diversification

The 3 months correlation between First and Essent is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding First American and Essent Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essent 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 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 First American i.e., First American and Essent go up and down completely randomly.

Pair Corralation between First American and Essent

Considering the 90-day investment horizon First American is expected to under-perform the Essent. In addition to that, First American is 1.17 times more volatile than Essent Group. It trades about -0.08 of its total potential returns per unit of risk. Essent Group is currently generating about 0.0 per unit of volatility. If you would invest  5,750  in Essent Group on November 29, 2024 and sell it today you would lose (16.00) from holding Essent Group or give up 0.28% of portfolio value over 90 days.

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

First American  vs.  Essent Group

First American

Risk-Adjusted Performance

Very Weak

Over the last 90 days First American has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Essent Group

Risk-Adjusted Performance

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 comparatively stable basic indicators, Essent is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First American and Essent

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