Correlation Between MGIC Investment and Waste Management

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

Diversification Opportunities for MGIC Investment and Waste Management

0.15

Correlation Coefficient

MGIC Investment  Waste Management

Average diversification

The 3 months correlation between MGIC and Waste is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment Corp and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of MGIC Investment i.e., MGIC Investment and Waste Management go up and down completely randomly.

Pair Corralation between MGIC Investment and Waste Management

Considering the 90-day investment horizon MGIC Investment Corp is expected to generate 1.42 times more return on investment than Waste Management. However, MGIC Investment is 1.42 times more volatile than Waste Management. It trades about -0.04 of its potential returns per unit of risk. Waste Management is currently generating about -0.15 per unit of risk. If you would invest  2,491  in MGIC Investment Corp on September 12, 2024 and sell it today you would lose (34.00) from holding MGIC Investment Corp or give up 1.36% of portfolio value over 90 days.

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

MGIC Investment Corp  vs.  Waste Management

MGIC Investment Corp

Risk-Adjusted Performance

0 of 100

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.

Waste Management

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Waste Management is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MGIC Investment and Waste Management

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

The idea behind MGIC Investment Corp and Waste Management 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.