Correlation Between James River and Ambac Financial

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

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

Diversification Opportunities for James River and Ambac Financial

-0.51

Correlation Coefficient

James River  Ambac Financial

Excellent diversification

The 3 months correlation between James and Ambac is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding James River Group 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 James River 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 James River Group 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 James River i.e., James River and Ambac Financial go up and down completely randomly.

Pair Corralation between James River and Ambac Financial

Given the investment horizon of 90 days James River Group is expected to generate 1.02 times more return on investment than Ambac Financial. However, James River is 1.02 times more volatile than Ambac Financial Group. It trades about 0.03 of its potential returns per unit of risk. Ambac Financial Group is currently generating about -0.06 per unit of risk. If you would invest  468.00  in James River Group on November 28, 2024 and sell it today you would earn a total of  13.00  from holding James River Group or generate 2.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

James River Group  vs.  Ambac Financial Group

James River Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in James River Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, James River is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Ambac Financial Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ambac Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with James River and Ambac Financial

The main advantage of trading using opposite James River and Ambac Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if James River 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 James River Group 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.