Correlation Between Cadence Design and Magic Software

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

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

Diversification Opportunities for Cadence Design and Magic Software

0.64

Correlation Coefficient

Cadence Design  Magic Software

Poor diversification

The 3 months correlation between Cadence and Magic is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems 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 Cadence Design 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 Cadence Design Systems 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 Cadence Design i.e., Cadence Design and Magic Software go up and down completely randomly.

Pair Corralation between Cadence Design and Magic Software

Assuming the 90 days horizon Cadence Design is expected to generate 12.34 times less return on investment than Magic Software. But when comparing it to its historical volatility, Cadence Design Systems is 1.35 times less risky than Magic Software. It trades about 0.02 of its potential returns per unit of risk. Magic Software Enterprises is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,010  in Magic Software Enterprises on September 22, 2024 and sell it today you would earn a total of  130.00  from holding Magic Software Enterprises or generate 12.87% return on investment over 90 days.

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

Cadence Design Systems  vs.  Magic Software Enterprises

Cadence Design Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cadence Design reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Cadence Design and Magic Software

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

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.