Correlation Between MGIC Investment and Cincinnati Financial

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

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

Diversification Opportunities for MGIC Investment and Cincinnati Financial

0.47

Correlation Coefficient

MGIC Investment  Cincinnati Financial

Very weak diversification

The 3 months correlation between MGIC and Cincinnati is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment Corp and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial 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 Corp are associated (or correlated) with Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial has no effect on the direction of MGIC Investment i.e., MGIC Investment and Cincinnati Financial go up and down completely randomly.

Pair Corralation between MGIC Investment and Cincinnati Financial

Considering the 90-day investment horizon MGIC Investment Corp is expected to generate 0.84 times more return on investment than Cincinnati Financial. However, MGIC Investment Corp is 1.19 times less risky than Cincinnati Financial. It trades about 0.2 of its potential returns per unit of risk. Cincinnati Financial is currently generating about -0.03 per unit of risk. If you would invest  2,332  in MGIC Investment Corp on October 20, 2024 and sell it today you would earn a total of  114.00  from holding MGIC Investment Corp or generate 4.89% return on investment over 90 days.

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

MGIC Investment Corp  vs.  Cincinnati Financial

MGIC Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cincinnati Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cincinnati Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cincinnati Financial 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 Cincinnati Financial

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

The idea behind MGIC Investment Corp and Cincinnati Financial 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.