Correlation Between MGIC INVESTMENT and Beazer Homes

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

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

Diversification Opportunities for MGIC INVESTMENT and Beazer Homes

0.69

Correlation Coefficient

MGIC INVESTMENT  Beazer Homes

Poor diversification

The 3 months correlation between MGIC and Beazer is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding MGIC INVESTMENT and Beazer Homes USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beazer Homes USA 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 Beazer Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beazer Homes USA has no effect on the direction of MGIC INVESTMENT i.e., MGIC INVESTMENT and Beazer Homes go up and down completely randomly.

Pair Corralation between MGIC INVESTMENT and Beazer Homes

Assuming the 90 days trading horizon MGIC INVESTMENT is expected to generate 0.35 times more return on investment than Beazer Homes. However, MGIC INVESTMENT is 2.9 times less risky than Beazer Homes. It trades about 0.12 of its potential returns per unit of risk. Beazer Homes USA is currently generating about -0.04 per unit of risk. If you would invest  2,167  in MGIC INVESTMENT on October 6, 2024 and sell it today you would earn a total of  133.00  from holding MGIC INVESTMENT or generate 6.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.5%
Values	Daily Returns

MGIC INVESTMENT  vs.  Beazer Homes USA

MGIC INVESTMENT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGIC INVESTMENT has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Beazer Homes USA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beazer Homes USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MGIC INVESTMENT and Beazer Homes

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

The idea behind MGIC INVESTMENT and Beazer Homes USA 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.