Correlation Between Cincinnati Financial and MGIC Investment

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

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

Diversification Opportunities for Cincinnati Financial and MGIC Investment

0.2

Correlation Coefficient

Cincinnati Financial  MGIC Investment

Modest diversification

The 3 months correlation between Cincinnati and MGIC is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial 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 Cincinnati Financial 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 Cincinnati Financial 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 Cincinnati Financial i.e., Cincinnati Financial and MGIC Investment go up and down completely randomly.

Pair Corralation between Cincinnati Financial and MGIC Investment

Given the investment horizon of 90 days Cincinnati Financial is expected to generate 1.56 times less return on investment than MGIC Investment. In addition to that, Cincinnati Financial is 1.08 times more volatile than MGIC Investment Corp. It trades about 0.06 of its total potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.11 per unit of volatility. If you would invest  1,231  in MGIC Investment Corp on September 13, 2024 and sell it today you would earn a total of  1,255  from holding MGIC Investment Corp or generate 101.95% return on investment over 90 days.

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

Cincinnati Financial  vs.  MGIC Investment Corp

Cincinnati Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cincinnati Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Cincinnati Financial and MGIC Investment

The main advantage of trading using opposite Cincinnati Financial and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cincinnati Financial 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 Cincinnati Financial 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.