Correlation Between MGIC Investment and Federal Home

Can any of the company-specific risk be diversified away by investing in both MGIC Investment and Federal Home 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 Federal Home 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 Federal Home Loan, you can compare the effects of market volatilities on MGIC Investment and Federal Home 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 Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of MGIC Investment and Federal Home.

Diversification Opportunities for MGIC Investment and Federal Home

0.51

Correlation Coefficient

MGIC Investment  Federal Home

Very weak diversification

The 3 months correlation between MGIC and Federal is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment Corp and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of MGIC Investment i.e., MGIC Investment and Federal Home go up and down completely randomly.

Pair Corralation between MGIC Investment and Federal Home

Considering the 90-day investment horizon MGIC Investment Corp is expected to generate 0.61 times more return on investment than Federal Home. However, MGIC Investment Corp is 1.64 times less risky than Federal Home. It trades about -0.01 of its potential returns per unit of risk. Federal Home Loan is currently generating about -0.06 per unit of risk. If you would invest  2,433  in MGIC Investment Corp on January 17, 2025 and sell it today you would lose (49.00) from holding MGIC Investment Corp or give up 2.01% of portfolio value over 90 days.

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

MGIC Investment Corp  vs.  Federal Home Loan

MGIC Investment Corp

Risk-Adjusted Performance

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.

Federal Home Loan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Home Loan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward-looking signals remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with MGIC Investment and Federal Home

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

The idea behind MGIC Investment Corp and Federal Home Loan 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..