Correlation Between Dan Hotels and Magic Software

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

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

Diversification Opportunities for Dan Hotels and Magic Software

0.46

Correlation Coefficient

Dan Hotels  Magic Software

Very weak diversification

The 3 months correlation between Dan and Magic is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dan Hotels 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 Dan Hotels 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 Dan Hotels 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 Dan Hotels i.e., Dan Hotels and Magic Software go up and down completely randomly.

Pair Corralation between Dan Hotels and Magic Software

Assuming the 90 days trading horizon Dan Hotels is expected to under-perform the Magic Software. In addition to that, Dan Hotels is 1.02 times more volatile than Magic Software Enterprises. It trades about -0.01 of its total potential returns per unit of risk. Magic Software Enterprises is currently generating about -0.01 per unit of volatility. If you would invest  455,900  in Magic Software Enterprises on November 28, 2024 and sell it today you would lose (1,900) from holding Magic Software Enterprises or give up 0.42% of portfolio value over 90 days.

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

Dan Hotels  vs.  Magic Software Enterprises

Dan Hotels

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dan Hotels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dan Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Magic Software Enter

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Dan Hotels and Magic Software

The main advantage of trading using opposite Dan Hotels and Magic Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dan Hotels 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 Dan Hotels 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.