Correlation Between CSP and Magic Software

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

By analyzing existing cross correlation between CSP Inc and Magic Software Enterprises, you can compare the effects of market volatilities on CSP and Magic Software 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 CSP with a short position of Magic Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSP and Magic Software.

Diversification Opportunities for CSP and Magic Software

0.39

Correlation Coefficient

CSP  Magic Software

Weak diversification

The 3 months correlation between CSP and Magic is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CSP Inc and Magic Software Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magic Software Enter and CSP 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 CSP Inc are associated (or correlated) with Magic Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magic Software Enter has no effect on the direction of CSP i.e., CSP and Magic Software go up and down completely randomly.

Pair Corralation between CSP and Magic Software

Given the investment horizon of 90 days CSP Inc is expected to generate 2.11 times more return on investment than Magic Software. However, CSP is 2.11 times more volatile than Magic Software Enterprises. It trades about 0.28 of its potential returns per unit of risk. Magic Software Enterprises is currently generating about 0.16 per unit of risk. If you would invest  1,262  in CSP Inc on September 5, 2024 and sell it today you would earn a total of  466.00  from holding CSP Inc or generate 36.93% return on investment over 90 days.

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

CSP Inc  vs.  Magic Software Enterprises

CSP Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CSP Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, CSP demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Magic Software Enter

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Magic Software exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CSP and Magic Software

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

The idea behind CSP Inc and Magic Software Enterprises 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.