Correlation Between SOUTHERN and MGIC Investment

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

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

Diversification Opportunities for SOUTHERN and MGIC Investment

0.22

Correlation Coefficient

SOUTHERN  MGIC Investment

Modest diversification

The 3 months correlation between SOUTHERN and MGIC is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHERN PER CORP 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 SOUTHERN 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 SOUTHERN PER CORP 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 SOUTHERN i.e., SOUTHERN and MGIC Investment go up and down completely randomly.

Pair Corralation between SOUTHERN and MGIC Investment

Assuming the 90 days trading horizon SOUTHERN PER CORP is expected to generate 0.65 times more return on investment than MGIC Investment. However, SOUTHERN PER CORP is 1.54 times less risky than MGIC Investment. It trades about -0.03 of its potential returns per unit of risk. MGIC Investment Corp is currently generating about -0.14 per unit of risk. If you would invest  9,475  in SOUTHERN PER CORP on September 20, 2024 and sell it today you would lose (80.00) from holding SOUTHERN PER CORP or give up 0.84% of portfolio value over 90 days.

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

SOUTHERN PER CORP  vs.  MGIC Investment Corp

SOUTHERN PER P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SOUTHERN PER CORP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SOUTHERN is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 fragile 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 SOUTHERN and MGIC Investment

The main advantage of trading using opposite SOUTHERN and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHERN 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 SOUTHERN PER CORP 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.