Correlation Between Bassett Furniture and MGIC Investment

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

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

Diversification Opportunities for Bassett Furniture and MGIC Investment

0.45

Correlation Coefficient

Bassett Furniture  MGIC Investment

Very weak diversification

The 3 months correlation between Bassett and MGIC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Bassett Furniture Industries 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 Bassett Furniture 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 Bassett Furniture Industries 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 Bassett Furniture i.e., Bassett Furniture and MGIC Investment go up and down completely randomly.

Pair Corralation between Bassett Furniture and MGIC Investment

Given the investment horizon of 90 days Bassett Furniture is expected to generate 31.54 times less return on investment than MGIC Investment. In addition to that, Bassett Furniture is 1.05 times more volatile than MGIC Investment Corp. It trades about 0.01 of its total potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.2 per unit of volatility. If you would invest  2,332  in MGIC Investment Corp on October 20, 2024 and sell it today you would earn a total of  114.00  from holding MGIC Investment Corp or generate 4.89% return on investment over 90 days.

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

Bassett Furniture Industries  vs.  MGIC Investment Corp

Bassett Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bassett Furniture Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Bassett Furniture is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private 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 Bassett Furniture and MGIC Investment

The main advantage of trading using opposite Bassett Furniture and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bassett Furniture 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 Bassett Furniture Industries 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.