Correlation Between MGIC Investment and Babcock Wilcox

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

By analyzing existing cross correlation between MGIC Investment Corp and Babcock Wilcox Enterprises, you can compare the effects of market volatilities on MGIC Investment and Babcock Wilcox 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 Babcock Wilcox. Check out your portfolio center. Please also check ongoing floating volatility patterns of MGIC Investment and Babcock Wilcox.

Diversification Opportunities for MGIC Investment and Babcock Wilcox

0.1

Correlation Coefficient

MGIC Investment  Babcock Wilcox

Average diversification

The 3 months correlation between MGIC and Babcock is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment Corp and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Corp are associated (or correlated) with Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of MGIC Investment i.e., MGIC Investment and Babcock Wilcox go up and down completely randomly.

Pair Corralation between MGIC Investment and Babcock Wilcox

Considering the 90-day investment horizon MGIC Investment is expected to generate 2.31 times less return on investment than Babcock Wilcox. In addition to that, MGIC Investment is 1.31 times more volatile than Babcock Wilcox Enterprises. It trades about 0.05 of its total potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about 0.16 per unit of volatility. If you would invest  1,923  in Babcock Wilcox Enterprises on September 3, 2024 and sell it today you would earn a total of  237.00  from holding Babcock Wilcox Enterprises or generate 12.32% return on investment over 90 days.

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

MGIC Investment Corp  vs.  Babcock Wilcox Enterprises

MGIC Investment Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MGIC Investment Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MGIC Investment is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Babcock Wilcox Enter

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Babcock Wilcox may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MGIC Investment and Babcock Wilcox

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

The idea behind MGIC Investment Corp and Babcock Wilcox Enterprises 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.