Correlation Between First American and Radian

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

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

Diversification Opportunities for First American and Radian

0.7

Correlation Coefficient

First American  Radian

Poor diversification

The 3 months correlation between First and Radian is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding First American and Radian Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radian 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 Radian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radian Group has no effect on the direction of First American i.e., First American and Radian go up and down completely randomly.

Pair Corralation between First American and Radian

Considering the 90-day investment horizon First American is expected to generate 1.44 times less return on investment than Radian. But when comparing it to its historical volatility, First American is 1.15 times less risky than Radian. It trades about 0.04 of its potential returns per unit of risk. Radian Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,751  in Radian Group on October 2, 2024 and sell it today you would earn a total of  423.00  from holding Radian Group or generate 15.38% 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.  Radian 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.

Radian Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Radian Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Radian is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First American and Radian

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

The idea behind First American and Radian 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.