Correlation Between MGIC Investment and Assured Guaranty

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

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

Diversification Opportunities for MGIC Investment and Assured Guaranty

0.78

Correlation Coefficient

MGIC Investment  Assured Guaranty

Poor diversification

The 3 months correlation between MGIC and Assured is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment and Assured Guaranty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Assured Guaranty and MGIC Investment 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 MGIC Investment are associated (or correlated) with Assured Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Assured Guaranty has no effect on the direction of MGIC Investment i.e., MGIC Investment and Assured Guaranty go up and down completely randomly.

Pair Corralation between MGIC Investment and Assured Guaranty

Assuming the 90 days horizon MGIC Investment is expected to under-perform the Assured Guaranty. But the stock apears to be less risky and, when comparing its historical volatility, MGIC Investment is 1.93 times less risky than Assured Guaranty. The stock trades about 0.0 of its potential returns per unit of risk. The Assured Guaranty is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,168  in Assured Guaranty on December 28, 2024 and sell it today you would earn a total of  32.00  from holding Assured Guaranty or generate 0.39% return on investment over 90 days.

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

MGIC Investment  vs.  Assured Guaranty

MGIC Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days MGIC Investment 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Assured Guaranty

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Assured Guaranty are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Assured Guaranty is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MGIC Investment and Assured Guaranty

The main advantage of trading using opposite MGIC Investment and Assured Guaranty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGIC Investment position performs unexpectedly, Assured Guaranty 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 Assured Guaranty will offset losses from the drop in Assured Guaranty's long position.

The idea behind MGIC Investment and Assured Guaranty 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.