Correlation Between Arm Holdings and MGIC Investment

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

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

Diversification Opportunities for Arm Holdings and MGIC Investment

0.39

Correlation Coefficient

Arm Holdings  MGIC Investment

Weak diversification

The 3 months correlation between Arm and MGIC is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc 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 Arm Holdings 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 Arm Holdings plc 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 Arm Holdings i.e., Arm Holdings and MGIC Investment go up and down completely randomly.

Pair Corralation between Arm Holdings and MGIC Investment

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 2.65 times more return on investment than MGIC Investment. However, Arm Holdings is 2.65 times more volatile than MGIC Investment Corp. It trades about -0.05 of its potential returns per unit of risk. MGIC Investment Corp is currently generating about -0.31 per unit of risk. If you would invest  14,800  in Arm Holdings plc on October 13, 2024 and sell it today you would lose (751.00) from holding Arm Holdings plc or give up 5.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Arm Holdings plc  vs.  MGIC Investment Corp

Arm Holdings plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arm Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm 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 latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Arm Holdings and MGIC Investment

The main advantage of trading using opposite Arm Holdings and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arm Holdings 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 Arm Holdings plc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.