Correlation Between Bank of America and MGIC Investment
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and MGIC Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and MGIC Investment, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of MGIC Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and MGIC Investment.
Diversification Opportunities for Bank of America and MGIC Investment
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and MGIC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and MGIC Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC Investment and Bank of America 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 Verizon Communications 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 has no effect on the direction of Bank of America i.e., Bank of America and MGIC Investment go up and down completely randomly.
Pair Corralation between Bank of America and MGIC Investment
Assuming the 90 days trading horizon Bank of America is expected to generate 2.72 times less return on investment than MGIC Investment. In addition to that, Bank of America is 1.02 times more volatile than MGIC Investment. It trades about 0.04 of its total potential returns per unit of risk. MGIC Investment is currently generating about 0.11 per unit of volatility. If you would invest 1,147 in MGIC Investment on September 14, 2024 and sell it today you would earn a total of 1,193 from holding MGIC Investment or generate 104.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. MGIC Investment
Performance |
| Timeline |
| Verizon Communications |
| MGIC Investment |
Bank of America and MGIC Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and MGIC Investment
The main advantage of trading using opposite Bank of America and MGIC Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Consolidated Communications Holdings | Bank of America vs. Transport International Holdings | Bank of America vs. TEXAS ROADHOUSE | Bank of America vs. WillScot Mobile Mini |
| MGIC Investment vs. MELIA HOTELS | MGIC Investment vs. Xenia Hotels Resorts | MGIC Investment vs. Host Hotels Resorts | MGIC Investment vs. Park Hotels Resorts |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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