Correlation Between Essent and Walker Dunlop

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

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

Diversification Opportunities for Essent and Walker Dunlop

0.37

Correlation Coefficient

Essent  Walker Dunlop

Weak diversification

The 3 months correlation between Essent and Walker is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Essent Group and Walker Dunlop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walker Dunlop and Essent 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 Essent Group are associated (or correlated) with Walker Dunlop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walker Dunlop has no effect on the direction of Essent i.e., Essent and Walker Dunlop go up and down completely randomly.

Pair Corralation between Essent and Walker Dunlop

Given the investment horizon of 90 days Essent is expected to generate 1.51 times less return on investment than Walker Dunlop. But when comparing it to its historical volatility, Essent Group is 1.75 times less risky than Walker Dunlop. It trades about 0.09 of its potential returns per unit of risk. Walker Dunlop is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,512  in Walker Dunlop on January 26, 2024 and sell it today you would earn a total of  2,892  from holding Walker Dunlop or generate 44.41% return on investment over 90 days.

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

Essent Group  vs.  Walker Dunlop

Essent Group

Risk-Adjusted Performance

0 of 100

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.

Walker Dunlop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Walker Dunlop has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Walker Dunlop is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Essent and Walker Dunlop

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

The idea behind Essent Group and Walker Dunlop 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.