Correlation Between Aspen Insurance and MGIC Investment

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

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

Diversification Opportunities for Aspen Insurance and MGIC Investment

0.25

Correlation Coefficient

Aspen Insurance  MGIC Investment

Modest diversification

The 3 months correlation between Aspen and MGIC is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Insurance Holdings 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 Aspen Insurance 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 Aspen Insurance Holdings 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 Aspen Insurance i.e., Aspen Insurance and MGIC Investment go up and down completely randomly.

Pair Corralation between Aspen Insurance and MGIC Investment

Assuming the 90 days trading horizon Aspen Insurance Holdings is expected to generate 0.81 times more return on investment than MGIC Investment. However, Aspen Insurance Holdings is 1.23 times less risky than MGIC Investment. It trades about 0.09 of its potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.06 per unit of risk. If you would invest  2,068  in Aspen Insurance Holdings on September 3, 2024 and sell it today you would earn a total of  140.00  from holding Aspen Insurance Holdings or generate 6.77% return on investment over 90 days.

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

Aspen Insurance Holdings  vs.  MGIC Investment Corp

Aspen Insurance Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Insurance Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Aspen Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Aspen Insurance and MGIC Investment

The main advantage of trading using opposite Aspen Insurance and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen Insurance 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 Aspen Insurance Holdings 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.