Correlation Between SBM OFFSHORE and Magic Software

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

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

Diversification Opportunities for SBM OFFSHORE and Magic Software

-0.28

Correlation Coefficient

SBM OFFSHORE  Magic Software

Very good diversification

The 3 months correlation between SBM and Magic is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding SBM OFFSHORE 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 SBM OFFSHORE 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 SBM OFFSHORE 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 SBM OFFSHORE i.e., SBM OFFSHORE and Magic Software go up and down completely randomly.

Pair Corralation between SBM OFFSHORE and Magic Software

Assuming the 90 days trading horizon SBM OFFSHORE is expected to generate 0.59 times more return on investment than Magic Software. However, SBM OFFSHORE is 1.68 times less risky than Magic Software. It trades about 0.12 of its potential returns per unit of risk. Magic Software Enterprises is currently generating about -0.1 per unit of risk. If you would invest  1,698  in SBM OFFSHORE on October 11, 2024 and sell it today you would earn a total of  34.00  from holding SBM OFFSHORE or generate 2.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

SBM OFFSHORE  vs.  Magic Software Enterprises

SBM OFFSHORE

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SBM OFFSHORE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, SBM OFFSHORE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Magic Software Enter

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with SBM OFFSHORE and Magic Software

The main advantage of trading using opposite SBM OFFSHORE and Magic Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM OFFSHORE 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 SBM OFFSHORE 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.