Correlation Between 06051GJM2 and MGIC Investment

Can any of the company-specific risk be diversified away by investing in both 06051GJM2 and MGIC Investment 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 06051GJM2 and MGIC Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BANK OF AMERICA and MGIC Investment Corp, you can compare the effects of market volatilities on 06051GJM2 and MGIC Investment 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 06051GJM2 with a short position of MGIC Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of 06051GJM2 and MGIC Investment.

Diversification Opportunities for 06051GJM2 and MGIC Investment

0.28

Correlation Coefficient

06051GJM2  MGIC Investment

Modest diversification

The 3 months correlation between 06051GJM2 and MGIC is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding BANK OF AMERICA and MGIC Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC Investment Corp and 06051GJM2 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 BANK OF AMERICA are associated (or correlated) with MGIC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGIC Investment Corp has no effect on the direction of 06051GJM2 i.e., 06051GJM2 and MGIC Investment go up and down completely randomly.

Pair Corralation between 06051GJM2 and MGIC Investment

Assuming the 90 days trading horizon BANK OF AMERICA is expected to under-perform the MGIC Investment. But the bond apears to be less risky and, when comparing its historical volatility, BANK OF AMERICA is 1.68 times less risky than MGIC Investment. The bond trades about -0.16 of its potential returns per unit of risk. The MGIC Investment Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,512  in MGIC Investment Corp on September 13, 2024 and sell it today you would lose (31.00) from holding MGIC Investment Corp or give up 1.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

BANK OF AMERICA  vs.  MGIC Investment Corp

BANK OF AMERICA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK OF AMERICA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for BANK OF AMERICA investors.

MGIC Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGIC Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with 06051GJM2 and MGIC Investment

The main advantage of trading using opposite 06051GJM2 and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 06051GJM2 position performs unexpectedly, MGIC Investment 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 MGIC Investment will offset losses from the drop in MGIC Investment's long position.

The idea behind BANK OF AMERICA and MGIC Investment Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.