Correlation Between Delek Drilling and MGIC Investment

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

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

Diversification Opportunities for Delek Drilling and MGIC Investment

-0.38

Correlation Coefficient

Delek Drilling  MGIC Investment

Very good diversification

The 3 months correlation between Delek and MGIC is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Delek Drilling 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 Delek Drilling 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 Delek Drilling 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 Delek Drilling i.e., Delek Drilling and MGIC Investment go up and down completely randomly.

Pair Corralation between Delek Drilling and MGIC Investment

Assuming the 90 days horizon Delek Drilling is expected to generate 1.67 times more return on investment than MGIC Investment. However, Delek Drilling is 1.67 times more volatile than MGIC Investment Corp. It trades about 0.14 of its potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.07 per unit of risk. If you would invest  219.00  in Delek Drilling on September 24, 2024 and sell it today you would earn a total of  108.00  from holding Delek Drilling or generate 49.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Delek Drilling   vs.  MGIC Investment Corp

Delek Drilling

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delek Drilling are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Delek Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

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 Delek Drilling and MGIC Investment

The main advantage of trading using opposite Delek Drilling and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delek Drilling 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 Delek Drilling 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.