Correlation Between MGIC INVESTMENT and Caterpillar

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

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

Diversification Opportunities for MGIC INVESTMENT and Caterpillar

0.31

Correlation Coefficient

MGIC INVESTMENT  Caterpillar

Weak diversification

The 3 months correlation between MGIC and Caterpillar is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding MGIC INVESTMENT and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar 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 Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of MGIC INVESTMENT i.e., MGIC INVESTMENT and Caterpillar go up and down completely randomly.

Pair Corralation between MGIC INVESTMENT and Caterpillar

Assuming the 90 days trading horizon MGIC INVESTMENT is expected to generate 0.66 times more return on investment than Caterpillar. However, MGIC INVESTMENT is 1.5 times less risky than Caterpillar. It trades about -0.11 of its potential returns per unit of risk. Caterpillar is currently generating about -0.41 per unit of risk. If you would invest  2,427  in MGIC INVESTMENT on December 4, 2024 and sell it today you would lose (67.00) from holding MGIC INVESTMENT or give up 2.76% of portfolio value over 90 days.

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

MGIC INVESTMENT  vs.  Caterpillar

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. 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.

Caterpillar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with MGIC INVESTMENT and Caterpillar

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

The idea behind MGIC INVESTMENT and Caterpillar 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.