Correlation Between James River and Essent

Can any of the company-specific risk be diversified away by investing in both James River 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 James River and Essent 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 Essent Group, you can compare the effects of market volatilities on James River 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 James River with a short position of Essent. Check out your portfolio center. Please also check ongoing floating volatility patterns of James River and Essent.

Diversification Opportunities for James River and Essent

0.34

Correlation Coefficient

James River  Essent

Weak diversification

The 3 months correlation between James and Essent is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding James River Group and Essent Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essent 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 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 James River i.e., James River and Essent go up and down completely randomly.

Pair Corralation between James River and Essent

Given the investment horizon of 90 days James River Group is expected to under-perform the Essent. In addition to that, James River is 3.47 times more volatile than Essent Group. It trades about -0.02 of its total potential returns per unit of risk. Essent Group is currently generating about 0.09 per unit of volatility. If you would invest  5,382  in Essent Group on December 28, 2024 and sell it today you would earn a total of  353.00  from holding Essent Group or generate 6.56% return on investment over 90 days.

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

James River Group  vs.  Essent Group

James River Group

Risk-Adjusted Performance

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 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.

Essent Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essent Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Essent may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with James River and Essent

The main advantage of trading using opposite James River and Essent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if James River 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 James River Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.