Correlation Between MGIC INVESTMENT and Select Energy

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

By analyzing existing cross correlation between MGIC INVESTMENT and Select Energy Services, you can compare the effects of market volatilities on MGIC INVESTMENT and Select Energy 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 Select Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of MGIC INVESTMENT and Select Energy.

Diversification Opportunities for MGIC INVESTMENT and Select Energy

0.65

Correlation Coefficient

MGIC INVESTMENT  Select Energy

Poor diversification

The 3 months correlation between MGIC and Select is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding MGIC INVESTMENT and Select Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Energy Services 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 Select Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Energy Services has no effect on the direction of MGIC INVESTMENT i.e., MGIC INVESTMENT and Select Energy go up and down completely randomly.

Pair Corralation between MGIC INVESTMENT and Select Energy

Assuming the 90 days trading horizon MGIC INVESTMENT is expected to generate 0.69 times more return on investment than Select Energy. However, MGIC INVESTMENT is 1.45 times less risky than Select Energy. It trades about -0.23 of its potential returns per unit of risk. Select Energy Services is currently generating about -0.36 per unit of risk. If you would invest  2,440  in MGIC INVESTMENT on September 25, 2024 and sell it today you would lose (160.00) from holding MGIC INVESTMENT or give up 6.56% of portfolio value over 90 days.

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

MGIC INVESTMENT  vs.  Select Energy Services

MGIC INVESTMENT

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MGIC INVESTMENT are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, MGIC INVESTMENT is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Select Energy Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MGIC INVESTMENT and Select Energy

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

The idea behind MGIC INVESTMENT and Select Energy Services 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.