Correlation Between Small Cap and MGIC Investment

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

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

Diversification Opportunities for Small Cap and MGIC Investment

-0.43

Correlation Coefficient

Small Cap  MGIC Investment

Very good diversification

The 3 months correlation between Small and MGIC is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and MGIC Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC Investment Corp and Small Cap 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 Small Cap Premium 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 Corp has no effect on the direction of Small Cap i.e., Small Cap and MGIC Investment go up and down completely randomly.

Pair Corralation between Small Cap and MGIC Investment

Considering the 90-day investment horizon Small Cap is expected to generate 3.53 times less return on investment than MGIC Investment. But when comparing it to its historical volatility, Small Cap Premium is 2.82 times less risky than MGIC Investment. It trades about 0.07 of its potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,297  in MGIC Investment Corp on October 10, 2024 and sell it today you would earn a total of  1,047  from holding MGIC Investment Corp or generate 80.72% return on investment over 90 days.

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

Small Cap Premium  vs.  MGIC Investment Corp

Small Cap Premium

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Small Cap and MGIC Investment

The main advantage of trading using opposite Small Cap and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Premium and MGIC Investment Corp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.