Correlation Between Magic Software and Ratio Oil

Can any of the company-specific risk be diversified away by investing in both Magic Software and Ratio Oil 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 Ratio Oil 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 Ratio Oil Explorations, you can compare the effects of market volatilities on Magic Software and Ratio Oil 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 Ratio Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magic Software and Ratio Oil.

Diversification Opportunities for Magic Software and Ratio Oil

0.51

Correlation Coefficient

Magic Software  Ratio Oil

Very weak diversification

The 3 months correlation between Magic and Ratio is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Ratio Oil Explorations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ratio Oil Explorations 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 Ratio Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ratio Oil Explorations has no effect on the direction of Magic Software i.e., Magic Software and Ratio Oil go up and down completely randomly.

Pair Corralation between Magic Software and Ratio Oil

Assuming the 90 days trading horizon Magic Software is expected to generate 6.96 times less return on investment than Ratio Oil. In addition to that, Magic Software is 1.55 times more volatile than Ratio Oil Explorations. It trades about 0.03 of its total potential returns per unit of risk. Ratio Oil Explorations is currently generating about 0.31 per unit of volatility. If you would invest  28,210  in Ratio Oil Explorations on September 14, 2024 and sell it today you would earn a total of  7,360  from holding Ratio Oil Explorations or generate 26.09% return on investment over 90 days.

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

Magic Software Enterprises  vs.  Ratio Oil Explorations

Magic Software Enter

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Magic Software is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ratio Oil Explorations

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ratio Oil Explorations are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ratio Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magic Software and Ratio Oil

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

The idea behind Magic Software Enterprises and Ratio Oil Explorations 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.