Correlation Between MGIC Investment and ON Semiconductor

Can any of the company-specific risk be diversified away by investing in both MGIC Investment and ON Semiconductor 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 ON Semiconductor 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 ON Semiconductor, you can compare the effects of market volatilities on MGIC Investment and ON Semiconductor 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 ON Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of MGIC Investment and ON Semiconductor.

Diversification Opportunities for MGIC Investment and ON Semiconductor

0.6

Correlation Coefficient

MGIC Investment  ON Semiconductor

Poor diversification

The 3 months correlation between MGIC and ON Semiconductor is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment Corp and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor 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 ON Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ON Semiconductor has no effect on the direction of MGIC Investment i.e., MGIC Investment and ON Semiconductor go up and down completely randomly.

Pair Corralation between MGIC Investment and ON Semiconductor

Considering the 90-day investment horizon MGIC Investment Corp is expected to generate 0.47 times more return on investment than ON Semiconductor. However, MGIC Investment Corp is 2.11 times less risky than ON Semiconductor. It trades about -0.31 of its potential returns per unit of risk. ON Semiconductor is currently generating about -0.36 per unit of risk. If you would invest  2,486  in MGIC Investment Corp on October 13, 2024 and sell it today you would lose (197.00) from holding MGIC Investment Corp or give up 7.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

MGIC Investment Corp  vs.  ON Semiconductor

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 latest inconsistent 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.

ON Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ON Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with MGIC Investment and ON Semiconductor

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

The idea behind MGIC Investment Corp and ON Semiconductor 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.