Correlation Between RELIANCE STEEL and Magic Software

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

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

Diversification Opportunities for RELIANCE STEEL and Magic Software

0.35

Correlation Coefficient

RELIANCE STEEL  Magic Software

Weak diversification

The 3 months correlation between RELIANCE and Magic is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding RELIANCE STEEL AL 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 RELIANCE STEEL 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 RELIANCE STEEL AL 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 RELIANCE STEEL i.e., RELIANCE STEEL and Magic Software go up and down completely randomly.

Pair Corralation between RELIANCE STEEL and Magic Software

Assuming the 90 days trading horizon RELIANCE STEEL AL is expected to generate 0.55 times more return on investment than Magic Software. However, RELIANCE STEEL AL is 1.82 times less risky than Magic Software. It trades about 0.05 of its potential returns per unit of risk. Magic Software Enterprises is currently generating about 0.0 per unit of risk. If you would invest  18,300  in RELIANCE STEEL AL on September 22, 2024 and sell it today you would earn a total of  7,180  from holding RELIANCE STEEL AL or generate 39.23% return on investment over 90 days.

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

RELIANCE STEEL AL  vs.  Magic Software Enterprises

RELIANCE STEEL AL

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RELIANCE STEEL AL are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, RELIANCE STEEL is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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. Despite nearly fragile basic indicators, Magic Software reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RELIANCE STEEL and Magic Software

The main advantage of trading using opposite RELIANCE STEEL and Magic Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RELIANCE STEEL 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 RELIANCE STEEL AL 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.