Correlation Between MGIC INVESTMENT and Constellation Software

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

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

Diversification Opportunities for MGIC INVESTMENT and Constellation Software

0.77

Correlation Coefficient

MGIC INVESTMENT  Constellation Software

Poor diversification

The 3 months correlation between MGIC and Constellation is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding MGIC INVESTMENT and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and MGIC INVESTMENT 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 MGIC INVESTMENT are associated (or correlated) with Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of MGIC INVESTMENT i.e., MGIC INVESTMENT and Constellation Software go up and down completely randomly.

Pair Corralation between MGIC INVESTMENT and Constellation Software

Assuming the 90 days trading horizon MGIC INVESTMENT is expected to generate 1.33 times less return on investment than Constellation Software. In addition to that, MGIC INVESTMENT is 1.07 times more volatile than Constellation Software. It trades about 0.02 of its total potential returns per unit of risk. Constellation Software is currently generating about 0.03 per unit of volatility. If you would invest  291,903  in Constellation Software on September 26, 2024 and sell it today you would earn a total of  6,597  from holding Constellation Software or generate 2.26% return on investment over 90 days.

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

MGIC INVESTMENT  vs.  Constellation Software

MGIC INVESTMENT

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MGIC INVESTMENT are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, MGIC INVESTMENT is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Constellation Software

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MGIC INVESTMENT and Constellation Software

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

The idea behind MGIC INVESTMENT and Constellation Software 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.