Correlation Between Computer Direct and Magic Software

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

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

Diversification Opportunities for Computer Direct and Magic Software

0.52

Correlation Coefficient

Computer Direct  Magic Software

Very weak diversification

The 3 months correlation between Computer and Magic is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Computer Direct 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 Computer Direct 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 Computer Direct 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 Computer Direct i.e., Computer Direct and Magic Software go up and down completely randomly.

Pair Corralation between Computer Direct and Magic Software

Assuming the 90 days trading horizon Computer Direct is expected to generate 1.1 times more return on investment than Magic Software. However, Computer Direct is 1.1 times more volatile than Magic Software Enterprises. It trades about 0.09 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  3,634,051  in Computer Direct on December 1, 2024 and sell it today you would earn a total of  301,949  from holding Computer Direct or generate 8.31% return on investment over 90 days.

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

Computer Direct  vs.  Magic Software Enterprises

Computer Direct

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Direct are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Computer Direct may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Magic Software Enter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Magic Software Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Computer Direct and Magic Software

The main advantage of trading using opposite Computer Direct and Magic Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Computer Direct 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 Computer Direct 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.