Correlation Between Microsoft and MGIC INVESTMENT

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

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

Diversification Opportunities for Microsoft and MGIC INVESTMENT

0.18

Correlation Coefficient

Microsoft  MGIC INVESTMENT

Average diversification

The 3 months correlation between Microsoft and MGIC is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MGIC INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC INVESTMENT and Microsoft 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 Microsoft 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 has no effect on the direction of Microsoft i.e., Microsoft and MGIC INVESTMENT go up and down completely randomly.

Pair Corralation between Microsoft and MGIC INVESTMENT

Assuming the 90 days trading horizon Microsoft is expected to under-perform the MGIC INVESTMENT. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.14 times less risky than MGIC INVESTMENT. The stock trades about -0.24 of its potential returns per unit of risk. The MGIC INVESTMENT is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  2,340  in MGIC INVESTMENT on October 15, 2024 and sell it today you would lose (60.00) from holding MGIC INVESTMENT or give up 2.56% of portfolio value over 90 days.

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

Microsoft  vs.  MGIC INVESTMENT

Microsoft

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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.

Pair Trading with Microsoft and MGIC INVESTMENT

The main advantage of trading using opposite Microsoft and MGIC INVESTMENT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and MGIC INVESTMENT 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.