Correlation Between Magic Software and Arad

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

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

Diversification Opportunities for Magic Software and Arad

0.38

Correlation Coefficient

Magic Software  Arad

Weak diversification

The 3 months correlation between Magic and Arad is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and Magic Software 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 Magic Software Enterprises are associated (or correlated) with Arad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad has no effect on the direction of Magic Software i.e., Magic Software and Arad go up and down completely randomly.

Pair Corralation between Magic Software and Arad

Assuming the 90 days trading horizon Magic Software is expected to generate 1.45 times less return on investment than Arad. In addition to that, Magic Software is 1.76 times more volatile than Arad. It trades about 0.05 of its total potential returns per unit of risk. Arad is currently generating about 0.13 per unit of volatility. If you would invest  470,300  in Arad on September 13, 2024 and sell it today you would earn a total of  37,800  from holding Arad or generate 8.04% return on investment over 90 days.

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

Magic Software Enterprises  vs.  Arad

Magic Software Enter

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Magic Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arad

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Arad may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Magic Software and Arad

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

The idea behind Magic Software Enterprises and Arad 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.