Correlation Between Magic Software and Big 5

Can any of the company-specific risk be diversified away by investing in both Magic Software and Big 5 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 Big 5 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 Big 5 Sporting, you can compare the effects of market volatilities on Magic Software and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magic Software and Big 5.

Diversification Opportunities for Magic Software and Big 5

-0.41

Correlation Coefficient

Magic Software  Big 5

Very good diversification

The 3 months correlation between Magic and Big is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Magic Software i.e., Magic Software and Big 5 go up and down completely randomly.

Pair Corralation between Magic Software and Big 5

Assuming the 90 days horizon Magic Software Enterprises is expected to generate 0.74 times more return on investment than Big 5. However, Magic Software Enterprises is 1.34 times less risky than Big 5. It trades about 0.0 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.06 per unit of risk. If you would invest  1,321  in Magic Software Enterprises on September 19, 2024 and sell it today you would lose (181.00) from holding Magic Software Enterprises or give up 13.7% of portfolio value over 90 days.

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

Magic Software Enterprises  vs.  Big 5 Sporting

Magic Software Enter

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Magic Software reported solid returns over the last few months and may actually be approaching a breakup point.

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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 Magic Software and Big 5

The main advantage of trading using opposite Magic Software and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magic Software position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.

The idea behind Magic Software Enterprises and Big 5 Sporting 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .