Correlation Between BTB Real and MGIC Investment

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

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

Diversification Opportunities for BTB Real and MGIC Investment

0.01

Correlation Coefficient

BTB Real  MGIC Investment

Significant diversification

The 3 months correlation between BTB and MGIC is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding BTB Real Estate 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 BTB Real 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 BTB Real Estate 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 BTB Real i.e., BTB Real and MGIC Investment go up and down completely randomly.

Pair Corralation between BTB Real and MGIC Investment

Assuming the 90 days horizon BTB Real is expected to generate 1.52 times less return on investment than MGIC Investment. But when comparing it to its historical volatility, BTB Real Estate is 1.51 times less risky than MGIC Investment. It trades about 0.07 of its potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,357  in MGIC Investment Corp on December 27, 2024 and sell it today you would earn a total of  117.00  from holding MGIC Investment Corp or generate 4.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.33%
Values	Daily Returns

BTB Real Estate  vs.  MGIC Investment Corp

BTB Real Estate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BTB Real Estate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, BTB Real is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

MGIC Investment Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MGIC Investment Corp are ranked lower than 5 (%) 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 BTB Real and MGIC Investment

The main advantage of trading using opposite BTB Real and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BTB Real 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 BTB Real Estate 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.