Correlation Between MAGIC SOFTWARE and NetSol Technologies

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

By analyzing existing cross correlation between MAGIC SOFTWARE ENTR and NetSol Technologies, you can compare the effects of market volatilities on MAGIC SOFTWARE and NetSol Technologies 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 NetSol Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of MAGIC SOFTWARE and NetSol Technologies.

Diversification Opportunities for MAGIC SOFTWARE and NetSol Technologies

0.2

Correlation Coefficient

MAGIC SOFTWARE  NetSol Technologies

Modest diversification

The 3 months correlation between MAGIC and NetSol is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding MAGIC SOFTWARE ENTR and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies 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 ENTR are associated (or correlated) with NetSol Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetSol Technologies has no effect on the direction of MAGIC SOFTWARE i.e., MAGIC SOFTWARE and NetSol Technologies go up and down completely randomly.

Pair Corralation between MAGIC SOFTWARE and NetSol Technologies

Assuming the 90 days trading horizon MAGIC SOFTWARE ENTR is expected to generate 1.01 times more return on investment than NetSol Technologies. However, MAGIC SOFTWARE is 1.01 times more volatile than NetSol Technologies. It trades about 0.15 of its potential returns per unit of risk. NetSol Technologies is currently generating about 0.06 per unit of risk. If you would invest  960.00  in MAGIC SOFTWARE ENTR on September 3, 2024 and sell it today you would earn a total of  240.00  from holding MAGIC SOFTWARE ENTR or generate 25.0% 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 ENTR  vs.  NetSol Technologies

MAGIC SOFTWARE ENTR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MAGIC SOFTWARE ENTR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, MAGIC SOFTWARE unveiled solid returns over the last few months and may actually be approaching a breakup point.

NetSol Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetSol Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NetSol Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MAGIC SOFTWARE and NetSol Technologies

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

The idea behind MAGIC SOFTWARE ENTR and NetSol Technologies 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.